Penguin Network Warehouses, LLC ("PNW, LLC") is a start-up warehousing and logistics company providing grocery stores with climate-controlled storage and just-in-time delivery of perishable goods nationwide. PNW, LLC has 10 Regional Offices with the Corporate Headquarters being in Region 5, Chicago. Each Regional Office makes tangible personal property purchases based on the needs of each location and performs the data entry exercise of entering the purchase information into a central system for fixed asset tracking and depreciation purposes.

Corporate has negotiated bulk pricing arrangements with its primary suppliers. Each Regional Office purchases the similar tangible personal property from three primary suppliers as follows:

Gentoo Refrigeration supplier of commercial cooling machinery and equipment Magellanic Resources supplier of computers and peripheral equipment used to manage logistics Emperor Office Furniture supplier of office furniture and fixtures

Ms. Humboldt, the Corporate Tax Analyst, has exported the data from the central system and has created the following Tableau visualization.

As typical of a start-up business, PNW, LLC expects to generate a current year loss with regular deprecation. As such, PNW, LLC does not elect Section 179 depreciation and elects out of bonus depreciation. PNW, LLC qualifies for the half year convention.

Required:

1. What asset class life was used by Kansas City Region 7 on assets purchased from Magellanic Resources?
2. Did Kansas City Region 7 under or over report depreciation on assets purchased from Magellanic Resources?
3. What is the correct depreciation for Kansas City Region 7 on assets purchased from Magellanic Resources?

Penguin Network Warehouses, LLC MACRS Depreciation Year 1 Regional Office Supplier 7 (All) Emperor Office Furn... Gentoo Refrigeration Magellanic Resources $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 MACRS Tax Depreciation Year 1 $1,000,000 $800,000 Regional Office (All) Atlanta Boston Chicago Dallas Denver Kansas City New York City Philadelphia San Francisco Seattle $600,000 $400,000 $200,000 $0 Atlanta Boston Chicago Dallas Denver Kansas City New York City Philadelphia San Francisco Seattle Penguin Network Warehouses, LLC MACRS Depreciation Year 1 Regional Office Supplier 7 (All) Emperor Office Furn... Gentoo Refrigeration Magellanic Resources $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 MACRS Tax Depreciation Year 1 $1,000,000 $800,000 Regional Office (All) Atlanta Boston Chicago Dallas Denver Kansas City New York City Philadelphia San Francisco Seattle $600,000 $400,000 $200,000 $0 Atlanta Boston Chicago Dallas Denver Kansas City New York City Philadelphia San Francisco Seattle