Question

Suber Inc., a calendar year taxpayer, purchased equipment for $860,000 and placed it in service on March 1. Suber’s chief engineer determined that the equipment had an estimated useful life of 120 months and a $56,000 residual value. For financial statement purposes, Suber uses the straight-line method to compute depreciation.

a. Assuming that the equipment has a seven-year recovery period and is subject to the half-year convention, compute MACRS depreciation for the year.

Answer 1

Ans a Depreciation as per MACRS:

As we know MACRS 7 year life assets depreciation rate is as under:

Year	1	2	3	4	5	6	7	8
Rate	14.29%	24.49%	17.49%	12.49%	893%	8.92%	8.93%	4.46%

Depreciation for the year using MACRS = 14.29% x $860,000 = $122,894

Additional Answer as per Straight line method:

Cost of Equipment = $860,000

Less: Salvage value = -56,000

Depreciable value = $804,000

Life = 120 months

Per month depreciation = 804000/120 = $6,700 per month

For the year depreciation will be = 10 months x 6700 = $67,000 using SLM