Required information Problem 10-58 (LO 10-2, LO 10-3) The following information

Question

Required information Problem 10-58 (LO 10-2, LO 10-3) The following information applies to the questions displayed below. Assume that Timberline Corporation has 2017 taxable income of $240,000 for purposes of computing the 5179 expense. It acquired the following assets in 2017: (Use MACRS Table 1. Table 2. Table 3, Table 4 and Table 5) Purchase Asset Date Basis Furniture (7-year) Computer equipment (5-year) Copier (5-year) Machinery (7-year) Total 350,000 90,000 30,000 480,000 December 1 February 28 July 15 May 22 $950,000 Problem 10-58 Part c c. What would Timberline's maximum depreciation expense be for 2017 if the furniture cost $2,000,000 instead of $350,000 and assuming no bonus depreciation?

Explanation / Answer

For Section 179 the maximum deduction allowed is Cost of Qualified Assets or Its Taxable Income Whichever is lower subject to maximum of $500,000. this maximum limit of $500,000 is reduced if cost of Qualified asset exceeds $2,000,000 by every dollar which exceeds $2,000,000.

In th given case the deduction allowed will be $240,000 and carry forward to next year will be $260,000(500,000-240,000)

C) The maximum depreciation expense for 2017 if the furniture cost $2,000,000 instead of $350,000, this is computed as follows :

The Maximum Expense under Sec 179 will be zero, which is computed as follows :

The maximum depreciation expense for 2017 using the mid quarter convention would be computed as follows :

(Amount in $)

Thus the Maximum Depreciation expense including Sec. 179 expense is $193,080.

Particulars Amount in $ Explanation 1) Property placed in service (950,000-350,000+2,000,000) 2,600,000 Total of Qualifying Assets 2) Threshold for Sec. 179 Phase out 2,000,000 2017 Amount 3) Phase out of maximum Sec.179 expense 600,000 (1)-(2) Permanently disallowed 4) Maximum Expense before phase out 500,000 2017 Amount 5) Phase out of maximum sec. 179 expense 600,000 from (3) 6) Maximum expense after Phase out 0 (4-5) but not below 0

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