Anne LLC purchased computer equipment (five-year property)on August 29 for $30,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.)
A)$432
B)$1,728
C)$1,874
D)$3,456
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

Since Anne LLC used the half-year convention when it initially depreciated the computer equipment, it is assumed that it placed the equipment in service on July 1 of the acquisition year. Therefore, for the fourth year of ownership, the property had been depreciated for three full years, and one half-year.

The MACRS depreciation rates for five-year property are 20%, 32%, 19.20%, 11.52%, 11.52%, and 5.76%, respectively. Using MACRS Table 1, the depreciation for the fourth year would be calculated as follows:

Year 1: ($30,000 x 20%) x 0.5 = $3,000
Year 2: ($30,000 x 32%) = $9,600
Year 3: ($30,000 x 19.20%) = $5,760
Year 4: ($30,000 x 11.52%) x 0.5 = $1,728

Therefore, the maximum depreciation expense for the fourth year is $1,728 (option B).

Anne LLC Purchased Computer Equipment (Five-Year Property)on August 29 for $30,000