Suvi, Inc. purchased two assets during the current year. Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000. Calculate the maximum depreciation expense, rounded to a whole number (ignoring §179 and bonus depreciation):
A) $857
B) $3,357
C) $5,429
D) $6,000
E) None of these

Question

Quizplus · Accepted Answer

For computer equipment: 
Depreciation rate = 20% (since it is 5-year property)
Depreciation expense = 20% x $20,000 = $4,000 (since it was placed in service in August, only 5/12 of a year is eligible for depreciation)
Maximum depreciation expense = $4,000 x (12/5) = $9,600 (assuming no §179 or bonus depreciation, but we need to ignore this)
For machinery: 
Depreciation rate = 14.29% (since it is 7-year property)
Depreciation expense = 14.29% x $10,000 = $1,429 (assuming full year depreciation since it was placed in service in November)
Maximum depreciation expense = $1,429 x 7 = $10,003 (assuming no §179 or bonus depreciation, but we need to ignore this)
Therefore, the maximum total depreciation expense would be $9,600 + $10,003 = $19,603, but since we need to round to a whole number, the answer is $5,429 (the closest option).

Suvi, Inc Purchased Two Assets During the Current Year