Warren Corporation acquires a used machine fiveyear property

Warren Corporation acquires a used machine (five-year property) on December 28, 2017, at a cost of $250,000. Henry Corporation also acquires another used machine (seven-year property) on January 19, 2017, at a cost of $75,000. The company does not make the § 179 elections.

a. Determine the depreciation deduction for these assets in 2017.   

b. Determine the depreciation deduction under H.R. 1 assuming these assets were placed in service on the same dates in 2018.

c. Warren Corporation also purchases Microsoft Office from Microsoft for use in its business as of January 1 of the current year at a cost of $30,000. No hardware was acquired. How much of the cost can Warren Corporation deduct this year?

d. Complete Form 4562 for Warren Corporation to report the depreciation and amortization for questions a. and c above.

Solution

a. Machinery purchased on December 28 , 2017 ( five year property) = $250,000

    Another machine acquired on Jan 19 , 2017 (seven year ) = $75000

    Annual Depreciation expense = (Asset cost – Residual Value) / Useful life of the asset

    Depreciation on mchinery purachaed on Jan 19 2017 = $75000/ 7= 10714.2

    Depreciation on machinery purchased on 28 Dec would not be applicable .

b     In 2018 same depreciation expenses would be subtracted from value of machinery

         hence depereciation expenses for machinery purchased in jan would be 10714.2 + 10714.2

          Depreciation expence for machinery purchased on 28 dec would be $250,000/ 5 = $50,000

           hence total depreciation deduction under H.R.1 would be 10714.2 + 10714.2 +50,000 = $71428.4

c.       The above amount can only be ducted in the following year .