Question

Bauk Printing uses the calendar year. Bauk purchases a digital printer for \$140,000 and places it...

Bauk Printing uses the calendar year. Bauk purchases a digital printer for \$140,000 and places it in service on April 1, 2016. The Company estimates that the digital printer will have a useful life of 10 years and no salvage value. If it uses MACRS and the half-year convention to compute its depreciation deduction, how will the purchase affect its net income and its taxable income in 2016? In 2020?

Depreciation rate in the first year 2016 = 10%, so Depreciation = 140000 * 10% = \$14000. The net income is reduced by \$14000.

Depreciation rate in the fifth year 2020 = 9.22%, so Depreciation = 140000 * 9.22% = \$12908. The net income is reduced by \$12908.

Note : MACRS and the half year convention depreciation rates:

Year Depreciation Rate in % for Recovery Period
3-year 5-year 7-year 10-year 15-year 20-year
1 33.33 20.00 14.29 10.00 5.00 3.750
2 44.45 32.00 24.49 18.00 9.50 7.219
3 14.81 19.20 17.49 14.40 8.55 6.677
4 7.41 11.52 12.49 11.52 7.70 6.177
5 11.52 8.93 9.22 6.93 5.713
6 5.76 8.92 7.37 6.23 5.285
7 8.93 6.55 5.90 4.888
8 4.46 6.55 5.90 4.522
9 6.56 5.91 4.462
10 6.55 5.90 4.461
11 3.28 5.91 4.462