Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.] DLW Corporation acquired and placed in service the following assets during the year: Date Cost Basis Asset Acquired Computer equipment Furniture Commercial building 2/9 10/10 2/28 18,800 26,600 348,000 Assuming DLW does not elect 5179 expensing or bonus depreciation, answer the following questions: (Use MACRS Table 1 Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) a. What is DLW's year 1 cost recovery for each asset? Answer is complete but not entirely correct ear Cost Recove Asset Computer equipment Furniture Commercial building Total 6,580 9,310 1.862 17,752

Explanation / Answer

Answer :-

a) DLW year 1 cost recovery

Computer need to be depreciated over 5 year that was placed into service in the first quarter of the year (Feb). It does not qualify for the mid-month convention because it is not nonresidential real property, residential real property or a railroad grading or tunnel bore.

It does not qualify for the mid-quarter convention because there was no property purchased in the last quarter of the year. Therefore, we will use the half-year convention which means that depreciation expense for the first year and the year the computer is disposed of will be calculated at 6 months regardless when the computer was placed into service. Using the rates from Table 1 for 5 year property gives us a depreciation rate of 20.00% for year 1 for the furniture.

Depreciation - 18800*20% = $ 3,760

Furniture need to be depreciated over 7 year that was placed into service in the first quarter of the year (Feb). It does not qualify for the mid-month convention because it is not nonresidential real property, residential real property or a railroad grading or tunnel bore.

It does not qualify for the mid-quarter convention because there was no property purchased in the last quarter of the year. Therefore, we will use the half-year convention which means that depreciation expense for the first year and the year the computer is disposed of will be calculated at 6 months regardless when the computer was placed into service. Using the rates from Table 1 for 7 year property gives us a depreciation rate of 14.29% for year 1 for the furniture.

Depreciton - $26,600*14.29% =3,801.14

b) DLW year 3 asset sold in 3rd year

i) Computer

Computer - 18800*9.6% = 1804.8

If you dispose Computer ANYTIME during the third year (doesn't matter if you dispose of it on the 2nd day of the yearor the 2nd to last day of the year), you'll pretend that the asset was disposed of in the middle of the year and thus takea half year of depreciation on the asset for year 3. This means depreciation for year 3 is 9.6% (half of 19.2%) of the depreciation base.

ii) Furniture

26,600 * 8.745% = $2326.17

If you dispose Furniture ANYTIME during the third year (doesn't matter if you dispose of it on the 2nd day of the yearor the 2nd to last day of the year), you'll pretend that the asset was disposed of in the middle of the year and thus takea half year of depreciation on the asset for year 3. This means depreciation for year 3 is 8.745% (half of 17.49%) of the depreciation base.

iii) Commercial building

348,000*1.282% = 4461.36

We need charge depreciation for half year FY rate is 2.564% so depreciation to be charged is 1.282%

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