What is Acorn’s maximum cost recovery deduction in the current year?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Acorn Construction (calendar-year-end C corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has record income and would like to maximize its cost recovery deduction for the current year. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Round your answer to the nearest whole dollar amount.) Acorn provided you with the following information:
| Asset | Placed in Service | Basis | |
| New equipment and tools | August 20 | $1800000 | |
| Used light-duty trucks | October 17 | 1500000 | |
| Used machinery | November 6 | 525000 | |
| Total | $3825000 | ||
The used assets had been contributed to the business by its owner in a tax-deferred transaction.
a. What is Acorn’s maximum cost recovery deduction in the current year?
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