MACRS (LO. 6) Rograin Corporation purchases turning lathes costing $1,073,000 an
ID: 2560128 • Letter: M
Question
MACRS (LO. 6) Rograin Corporation purchases turning lathes costing $1,073,000 and buses costing $975,000 in June of the current year. The lathes are 7- year MACRS property, and the buses are 5-year MACRS property. Rograin does not want to claim bonus depreciation. a. Rograin's maximum Section 179 deduction is b. Assuming that Rograin deducts the maximum Section 179 expense, the depreciable basis of the lathes is depreciable basis of the buses is and the Feedback Note: Round all values to the nearest whole dollar. Refer to the MACRS Depreciation Table to answer the following question. c. If Rograin wants to maximize its cost recovery this year, how much first-year depreciation may it deduct in addition to the Section 179 deduction? FeedbackExplanation / Answer
a) The maximum Section 179 expense deduction is $510,000 for 2017.However, the deduction is reduced dollar for dollar when purchasesexceed $2,030,000.In this case, Rograin has purchased $2048000 ($1073000 +975000) of qualifying property.Therefore, the maximum deduction is reduced by $18,000 ($2048000 - 2030000) to $492000($510000-$18,000).
b)The basis of assets expensed under Section 179 are reduced to preventcapital recovery in excess of cost.Rograin must determine which of thetwo properties to expense.To get the maximum overall depreciationdeduction, the Section 179 expense deduction should be allocated to theproperty with the longest recovery period.This results in a depreciablebasis for the lathes of $581000 ($1073000 - 492000) and $975000 forthe bus.
c)
The basis of the lathes and the bus are depreciated using Table A10-2.The lathes have a recovery period of 7 years and the bus has a recoveryperiod of 5 years.The maximum total first-year depreciation is $770025
Election to expense(from part a) 492000
Lathes – First-year depreciation($581000 X 14.29%) 83025
Bus – First-year depreciation($975000 X 20%) 195000
Total cost recovery deduction 770025
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