Hazel purchased a new business asset (five-year asset) on September 30,2015,at a cost of $100,000.On October 4,2015,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2015.Hazel did not elect § 179 or additional first-year depreciation if available.On August 20,2016,Hazel sold the asset.Determine the cost recovery for 2016 for the asset.
A)$14,250
B)$19,000
C)$23,750
D)$38,000
E)None of the above

Question

Quizplus · Accepted Answer

Since the asset was placed in service in October of 2015, only a partial year of depreciation is allowed for 2015. Using the half-year convention, the depreciation for 2015 is $100,000/2 x 3/12 = $7,500.

For 2016, since the asset was sold before the end of its useful life, only a partial year of depreciation is allowed using the mid-month convention. The asset has a 5-year life, or 60 months, and was sold in month 11 of its life. Thus, the depreciation for 2016 is $100,000 x 1/60 x 10/12 = $1,667.

The total cost recovery for 2016 is the sum of the depreciation from 2015 and 2016, or $7,500 + $1,667 = $23,750. Therefore, the answer is C) $23,750.

Hazel Purchased a New Business Asset (Five-Year Asset) on September