Phil owns a ranch business and uses fourwheelers to do much

Phil owns a ranch business and uses four-wheelers to do much of his work. Occasionally, though, he and his boys will go for a ride together as a family activity. During year 1, Phil put 906 miles on the four-wheeler that he bought on January 15 for $6,600. Of the miles driven, only 236 miles were for personal use. Assume four-wheelers qualify to be depreciated according to the five-year MACRS schedule and the four-wheeler was the only asset Phil purchased this year. (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. Calculate the allowable depreciation for year 1 (ignore the §179 expense and bonus depreciation).

Solution

a) Original basis for 4 wheeler = $6600

Full MACRS depreciation expense = 0.20*6600 = $1320

Allowable depreciation = ((906-236)/906)*1320 = $976 ( nearest whole no)