On June, 20, 2018, Simon Corporation (a calendar-year corporation) purchased and placed in service a new automobile costing $68,000. This vehicle is used 100% for business. Simon makes whatever elections are necessary to maximum its overall depreciation deduction for the year of acquisition. What is Simon Corporation's adjusted basis for the automobile at the end of 2020?
A) $0
B) $18,640
C) $24,400
D) $34,000

Question

Quizplus · Accepted Answer

Simon Corporation can elect to use the Modified Accelerated Cost Recovery System (MACRS) to depreciate the automobile over 5 years using the 200% declining balance method. In the year of acquisition, it can deduct half of the cost as bonus depreciation, leaving an adjusted basis of $34,000.

At the end of the second year, the depreciation schedule for the automobile will look like this:

Year 1: $34,000 x 0.20 = $6,800 (bonus depreciation)
Year 1: ($68,000 - $6,800) x 0.32 = $16,960 (regular depreciation)
Year 2: ($68,000 - $23,760) x 0.192 = $8,822.40

Thus, at the end of the second year, Simon Corporation's adjusted basis for the automobile will be $68,000 - $6,800 - $16,960 - $8,822.40 = $24,417.60. Rounded to the nearest dollar, the adjusted basis is $24,400.

On June, 20, 2018, Simon Corporation (A Calendar-Year Corporation) Purchased