On June 1, 2015, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business. The auto, with a cost basis of $22,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken for 2015, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

Question

Quizplus · Accepted Answer

Under MACRS for 5-year property, the first-year depreciation rate is 20%. Therefore, the depreciation for 2015 is 20% of $22,000, which equals $4,400. However, since the car was purchased in June, the half-year convention applies, so the depreciation is $4,400 * 0.5 = $2,200. But the correct choice is $3,160, which is the maximum allowable depreciation for a passenger automobile in the first year under the luxury auto limits for 2015.

On June 1, 2015, Cork Oak Corporation Purchased a Passenger