Question

Evergreen Corporation (calendar-year-end) acquired the following assets during the current year (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1 and Table 2.)

	Date Placed		Original
Asset	in Service		Basis
Machinery	October 25	$	70,000
Computer equipment	February 3		10,000
Used delivery truck*	August 17		23,000
Furniture	April 22		150,000

*The delivery truck is not a luxury automobile.

a. What is the allowable MACRS depreciation on Evergreen’s property in the current year?

b. What would be the allowable MACRS depreciation on Evergreen’s property in the current year if the machinery had a basis of $170,000 rather than $70,000?

Answer 1

a)
		Placed in	Original
	Asset	Service	Basis	Rate	Depreciation
			(a)	(b)	(a)*(b)
	Machinery (7 year)	Oct-25	$70,000	14.29%	$10,003
	Computer equipment (5 year)	Feb-03	$10,000	20.00%	$2,000
	Used delivery truck (5 year)	Aug-17	$23,000	20.00%	$4,600
	Furniture (7 year)	Apr-22	$150,000	14.29%	$21,435
	Total		$ 2,53,000		$38,038

Evergreen is not required to use the mid quarter convention because only 27.67% of its tangible personal property was placed in service during the 4th quarter (70,000/253,000). The delivery truck is not considered to be a luxury auto.

b)

	Placed in	Quarter	Original
Asset	Service		Basis	Rate	Depreciation
			(a)	(b)	(a)*(b)
Machinery (7 year)	Oct-25	4th	$170,000	3.57%	$6,069
Computer equipment (5 year)	Feb-03	1st	$10,000	35.00%	$3,500
Used delivery truck (5 year)	Aug-17	3rd	$23,000	15.00%	$3,450
Furniture (7 year)	Apr-22	2nd	$150,000	17.85%	$26,775
Total			$ 2,53,000		$39,794

$ 39,794, under the mid quarter convention, as computed above. Evergreen is required to use the mid quarter convention because greater than 40 percent of tangible personal property was placed in service during the 4th quarter. Evergreen placed 48.2% [$170,000 / ($10,000 + $23,000 + $150,000 + $170,000)] of its tangible personal property in service during the 4th quarter.