Hazel purchased a new business asset (five-year asset) on September 30, 2012, at a cost of $100,000. On October 4, 2012, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2012. The only election with respect to the asset was not to take § 179. On August 20, 2013, Hazel sold the asset. Determine the cost recovery for 2013 for the asset.
A)$9,600.
B)$11,875.
C)$23,750.
D)$38,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Since the asset was placed in service on October 4, 2012, it was in service for only 87 days in 2012. As a result, Hazel cannot claim a full year's worth of depreciation for the asset in the year of purchase. 
The asset is a five-year asset, so the MACRS recovery period is five years. Using the double declining balance method with a half-year convention, the depreciation for 2013 is calculated as follows:
((Cost - Accumulated Depreciation) x 20%) x 6/12
($100,000 - $20,000) x 20% x 6/12 = $11,875
Therefore, the cost recovery for 2013 for the asset is $11,875.

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