Depreciation : Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation. Depreciation cost = Cost of the asset-Salvage value Estimated useful life of the asset Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below: Depreciation = ( Cost of the asset − Residual value ) Estimated useful life of the asset To Describe: The factors that could explain the predominant use of the straight-line depreciation method.
Depreciation : Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation. Depreciation cost = Cost of the asset-Salvage value Estimated useful life of the asset Straight-line Depreciation: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below: Depreciation = ( Cost of the asset − Residual value ) Estimated useful life of the asset To Describe: The factors that could explain the predominant use of the straight-line depreciation method.
Solution Summary: The author explains that the straight-line method of depreciation is the easiest method to understand and follow. It produces higher net income at the beginning years of using the asset.
Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.
Depreciation cost = Cost of the asset-Salvage valueEstimated useful life of the asset
Straight-line Depreciation:
Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:
Depreciation = (Cost of the asset−Residual value)Estimated useful life of the asset
To Describe: The factors that could explain the predominant use of the straight-line depreciation method.
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.)
Note: 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
$ 3,800,000
Used light-duty trucks
October 17
2,000,000
Used machinery
November 6
1,525,000
Total
$ 7,325,000
The used assets had been contributed to the business by its owner in a tax-deferred transaction two years ago.
a. What is Acorn's maximum cost recovery deduction in the current year?