CH.2 Q.17

Harris Corp. is a technology start-up currently in its second year of operations. The company didnt purchase any assets this year but purchased the following assets in the prior year:

	Placed in
Asset	Service		Basis
Office equipment	August 14	$	15,000
Manufacturing equipment	April 15		118,000
Computer system	June 1		66,000
Total		$	199,000

Harris did not know depreciation was tax deductible until it hired an accountant this year and didnt claim any depreciation deduction in its first year of operation. (Use MACRS Table 1 and Table 2.)

REQUIRED

a. What is the maximum amount of depreciation deduction Harris Corp. can deduct in its second year of operation? (Leave no answer blank. Enter zero if applicable.)

b. What is the basis of the office equipment at the end of the second year? (Leave no answer blank. Enter zero if applicable.)

Table 1 MACRS Half-Year Convention 20-Year Depreciation Rate for Recovery Period 3-Year 5-Year 7-Year 10-Year 15-Year 33.33% 20.00% 14.29% 10.00% 5.00% 44.45 32.00 24.49 18.00 9.50 3.750% Year 1 Year 2 7.219 Year 3 19.20 17.49 14.40 8.55 6.677 14.81 7.41 Year 4 11.52 12.49 11.52 7.70 Year 5 8.93 9.22 11.52 5.76 6.93 6.23 6.177 5.713 5.285 Year 6 8.92 7.37 Year 7 6.55 5.90 4.888 8.93 4.46 Year 8 6.55 5.90 4.522 Year 9 5.91 4.462 Year 10 6.56 6.55 3.28 5.90 4.461 Year 11 5.91 4.462 5.90 Year 12 Year 13 4.461 4.462 5.91 5.90 Year 14 Year 15 5.91 4.461 4.462 4.461 Year 16 2.95 Year 17 4.462 Year 18 4.461 4.462 Year 19 Year 20 4.461 Year 21 2.231 TABLE 2a MACRS Mid-Quarter Convention: For property placed in service during the first quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 35.00% 25.00% Year 2 26.00 21.43 Year 3 15.60 15.31 Year 4 11.01 10.93 Year 5 11.01 8.75 Year 6 1.38 8.74 Year 7 8.75 Year 8 1.09 TABLE 26 MACRS Mid-Quarter Convention: For property placed in service during the second quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 25.00% 17.85% Year 2 30.00 23.47 Year 3 18.00 16.76 Year 4 11.37 11.97 Year 5 11.37 8.87 Year 6 4.26 8.87 Year 7 8.87 Year 8 3.34 TABLE 2c MACRS Mid-Quarter Convention: For property placed in service during the third quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 15.00% 10.71% Year 2 34.00 25.51 Year 3 20.40 18.22 Year 4 12.24 13.02 Year 5 11.30 9.30 Year 6 7.06 8.85 Year 7 8.86 Year 8 5.53 TABLE 20 MACRS-Mid Quarter Convention: For property placed in service during the fourth quarter Depreciation Rate for Recovery Period 5-Year 7-Year Year 1 5.00% 3.57% Year 2 38.00 27.55 Year 3 22.80 19.68 Year 4 13.68 14.06 Year 5 10.94 10.04 Year 6 9.58 8.73 Year 7 8.73 Year 8 7.64