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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Trident Developers purchased a computer system for $75,000 on April 27. 2014. The computer system is used for business 100%- of the time. The accountant for the company elected to take a $10,000 Section 179 deduction, and the asset qualified for a special depreciation allowance. (see Table 17-4)

Certain Qualified Asset Placed into Service Special Allowance
September 11, 2001 -May 5. 2003 30%
May 6, 2003-January 1, 2005 50%
December 31, 2007-January 1, 2015 50%

a. What was the basis for depreciation of the computer system?

b. What was the amount of the first year's depreciation using MACRS?

(a)

To determine

To calculate: The basis for depreciation of Trident Developer’s computer system using MACRS when the new computer system purchased cost is $75,000.

Explanation

Given Information:

The new computer system purchased by Trident Developers is for $75,000 and the computer system is used 100% of the time for business. For the year 2014, accountant took $10,000 Section 179 deduction.

Formula used:

The steps to calculate basis for depreciation by MACRS method are as follows:

Step 1: a. Calculate the Business-use basis by multiplying business-use percentage of the asset by the original cost as:

Business-use basis=Original cost×Businessuse percentage

Step 1: b. Calculate the tentative basis by subtracting Section 179 deduction from the Business-use basis as:

Tentative basis=Business-use basisSection 179 deduction

Step 1: c. Calculate the basis of depreciation by the following formula.

Basis for depreciation=Tentative basis(100%Special depreciation allowance percent)

Calculation:

Consider the new computer system purchased by Trident Developers is for $75,000 and the computer system is used 100% of the time for business.

The Business-use basis is:

Business-use basis=Original cost×Businessuse percentage

Now, using the above formula, the Business-use basis is:

Businessuse basis=75,000×100%=75,000×1

(b)

To determine

To calculate: The amount of the first years’ depreciation of Trident Developer’s computer system using MACRS when the new computer system purchased cost is $75,000.

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