Anne LLC purchased computer equipment (five-year property) on August 29 for $50,000 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.) (Round final answer to the nearest whole number.)
A) $720
B) $2,880
C) $3,123
D) $5,760
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Since the property was depreciated using the half-year convention, it had a depreciation period of 5.5 years (the half-year convention assumes that property is placed in service in the middle of the year), and in the current year, when it was disposed of, it had been owned for 3.5 years. The maximum depreciation expense can be calculated using MACRS Table 1 for 5.5-year property and the percentage for year 4 (which is 20%).

Depreciation expense = $50,000 x 20% = $10,000 
Depreciation expense for the current year (when the property was disposed of) = $10,000 x 3.5/5.5 = $6,286

However, since the property was disposed of on January 15, only half of the maximum depreciation expense can be taken.

Maximum depreciation expense = $6,286 / 2 = $3,143

Therefore, the closest answer choice is B) $2,880 (rounded to the nearest whole number).

Anne LLC Purchased Computer Equipment (Five-Year Property) on August 29