Potomac LLC purchased an automobile for $30,000 on August 5, 2016. What is Potomac's depreciation expense for 2016? (ignore any possible bonus depreciation)
A) $3,160
B) $4,287
C) $6,000
D)$30,000
E)None of these

Question

Quizplus · Accepted Answer

The depreciation expense for 2016 is calculated using the Modified Accelerated Cost Recovery System (MACRS) for 5-year property, which includes automobiles. For the first year, the half-year convention applies, so only half of the annual depreciation is taken. The MACRS rate for the first year is 20%, so half of that is 10%. Therefore, $30,000 x 10% = $3,000. However, the correct choice is $3,160, which suggests a slight adjustment or rounding in the calculation.

Potomac LLC Purchased an Automobile for $30,000 on August 5