Required information Comprehensive Problem 02-76 (LO 02-1, LO 02-2, LO 02-3, LO 02-4, LO 02-5) (Algo) [The following information applies to the questions displayed below.] Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2020. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2020: Date Placed in Asset Office furniture Machinery Cost $ 180,000 1,566,000 Service 02/03/2020 07/22/2020 Used delivery truck* 46,000 08/17/2020 *Not considered a luxury automobile. During 2020, Karane was very successful (and had no 179 limitations) and decided to acquire more assets in 2021 to increase its production capacity. These are the assets acquired during 2021: Date Placed in Asset Computers and information system Cost $ 406,000 Service 03/31/2021 Luxury autot Assembly equipment 81,500 1,230,000 700,000 05/26/2021 08/15/2021 11/13/2021 Storage building +Used 100% for business purposes. Karane generated taxable income in 2021 of $1,740,000 for purposes of computing the $179 expense limitation. (Use MACRS Table 1 Table 2, Table 3, Table 4, Table 5, and Exhibit 10-10.) (Leave no answer blank. Enter zero if applicable. Input all the values as positive numbers.) Comprehensive Problem 02-76 Part d (Algo) Required: d. Now assume that during 2021, Karane decides to buy a competitor's assets for a purchase price of $1,385,940. Compute the maximum 2021 cost recovery, including $179 expense and bonus depreciation. Karane purchased the following assets for the lump- sum purchase price: (Round your final answers to the nearest whole dollar amount.) Asset Inventory Office furniture Machinery Patent Goodwill Building Land Cost $ 226,000 Date Placed in Service 09/15/2021 236,000 256, 000 09/15/2021 09/15/2021 203, 400 09/15/2021 2,540 09/15/2021 436,000 09/15/2021 26,000 09/15/2021 Assume that Karane takes the maximum section 179 expense for the Assembly Equipment. Required: d. Now assume that during 2021, Karane decides to buy a competitor's assets for a purchase price of $1,385,940. Compute the maximum 2021 cost recovery, including $179 expense and bonus depreciation. Karane purchased the following assets for the lump- sum purchase price: (Round your final answers to the nearest whole dollar amount.) Asset Inventory Office furniture Machinery Patent Goodwill Date Placed in Service 09/15/2021 09/15/2021 Cost $ 226,000 236,000 256, 000 09/15/2021 203, 400 2, 540 09/15/2021 09/15/2021 436,000 26,000 09/15/2021 09/15/2021 Building Land Assume that Karane takes the maximum section 179 expense for the Assembly Equipment. Description 2020 Assets Office Furniture Machinery Used Delivery Truck 2021 Assets Computers and Information System 406,000 0 406,000 Luxury Auto 81,500 0 8,000 Assembly Equipment 1,230,000 1,050,000 180,000 Storage Building 700,000 0 0 Inventory 226,000 0 0 Office Furniture 236,000 0 236,000 Machinery 256,000 0 256,000 Answer is not complete. Cost Section 179 Bonus MACRS Basis Expense Current MACRS Depreciation Current Amortization Total Cost Recovery Deduction $ 180,000 $ 0 $ 0 $ 180,000 ( $ 44,082 0 1,566,000 0 0 1,566,000 128,882 x 0 46,000 0 0 46,000 14,720 0 0000000 000 S 44,082 128,882 14,720 0 0 0 406,000 81,500 x 10,289 x 0 18,289 0 0 0 1,230,000 700,000 2,247 0 0 2,247 0 0 0 236,000 0 0 256,000 Patent Goodwill Building Land 203,400 0 0 0 0 2,540 0 0 0 436,000 0 0 0 0 26,000 0 0 0 0 0 Totals $ 5,595,440 $ 1,050,000 $ 1,086,000 $ 2,573,500 $ 200,220 $ 0 $ 2,336,220 Table 1 MACRS Half-Year Convention Depreciation Rate for Recovery Period 3-Year 5-Year 7-Year 10-Year 15-Year 20-Year Year 1 33.33% 20.00% 14.29% 10.00% 5.00% 3.750% Year 2 44.45 32.00 24.49 18.00 9.50 7.219 Year 3 14.81 19.20 17.49 14.40 8.55 6.677 Year 4 7.41 11.52 12.49 11.52 7.70 6.177 Year 5 11.52 8.93 9.22 6.93 5.713 Year 6 5.76 8.92 7.37 6.23 5.285 Year 7 8.93 6.55 5.90 4.888 Year 8 4.46 6.55 5.90 4.522 Year 9 6.56 5.91 4.462 Year 10 6.55 5.90 4.461 Year 11 3.28 5.91 4.462 Year 12 5.90 4.461 Year 13 5.91 4.462 Year 14 5.90 4.461 Year 15 5.91 4.462 Year 16 2.95 4.461 Year 17 4.462 Year 18 4.461 Year 19 4.462 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 Year 8 8.75 1.09 TABLE 2b 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 8.87 3.34 Year 7 Year 8 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 2d 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 TABLE 3 Residential Rental Property Mid-Month Convention Straight Line-27.5 Years Month Property Placed in Service Month Month Month Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 10 Year 1 3.485% 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% 1.364% 1.061% 11 0.758% 0.455% 0.152% 12 Year 2-9 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 10 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 11 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 12 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 13 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 14 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 15 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 16 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 17 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 18 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 19 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 20 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 21 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 22 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 23 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 24 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 25 Year 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636 26 Year 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 27 Year 1.97 2.273 2.576 2.879 3.182 3.485 3.636 3.636 3.636 3.636 3.636 3.636 28 Year 0.152 0.455 0.758 1.061 1.364 1.667 29 TABLE 4 Nonresidential Real Property Mid-Month Convention Straight Line31.5 Years (for assets placed in service before May 13, 1993) Month Property Placed in Service Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Year 1 3.042% 2.778% 2.513% 2.249% 1.984% 1.720% 1.455% 1.190% 0.926% Month 10 Month 11 0.661% Month 12 0.397% 0.132% Year 2-7 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 Year 8 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.175 3.175 3.175 3.175 3.175 Year 9 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 10 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 11 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 12 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 13 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 14 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 15 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 16 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 17 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 18 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 19 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 20 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 21 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 22 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 23 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.115 3.174 3.175 3.174 3.175 Year 24 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 25 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 26 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 27 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 28 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 29 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 30 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 Year 31 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 Year 32 1.720 1.984 2.249 2.513 2.778 3.042 3.175 3.174 3.175 3.174 3.175 3.174 Year 33 0.132 0.397 0.661 0.926 1.190 1.455 TABLE 5 Nonresidential Real Property Mid-Month Convention Straight Line-39 Years (for assets placed in service on or after May 13, 1993) Month Property Placed in Service Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 2.461% 2.247% 2.033% 1.819% 1.605% 1.391% 1.177% 0.963% 0.749% 0.535% 0.321% 0.107% Year 2-39 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 Year 40 0.107 0.321 0.535 0.749 0.963 1.177 1.391 1,605 1.819 2.033 2.247 2.461 Recovery EXHIBIT 10-10 Automobile Depreciation Limits Year Placed in Service Year 2021* 2020 2019 1 10,100** 10,100** 10,100** 2018 10,000** 2 16,100 16,100 16,100 16,000 3 9,700 9,700 9,700 4 and after 5,760 5,760 5,760 9,600 5,760 "As of press date, the IRS had not released the 2021 limitations for automobiles, so throughout the chapter we use the same limitations as in 2020 for 2021. **$8,000 additional depreciation is allowed when bonus depreciation is claimed [168(k)(2)(F)].