Determine the depreciation allowed for tax purposes for the 2020 tax year.

Determine the depreciation allowed for tax purposes for the 2020 tax year.

1

Name:

Tuskegee University

Robert R. Taylor School of Architecture and Construction Science

CSMT 360 ‐‐‐‐ Construction Accounting & Financial Management CHAPTER 5 (Due: FEBRUARY 24, 2020 – 8pm)

Answer on a separate sheet of paper.

1. Why would a company use the sum-of-the-year or declining-balance methods to calculate depreciation? (Always use proper grammar and complete sentences when responding.) (5 points)
2. What is cost segregation? What are the advantages and disadvantages of cost segregation? (5 points)
3. For the current tax year, what are the maximum Section 179 deductions and the amount where Section 179 begins to be phased out? (5 points)
4. A piece of equipment is purchased for $110,000 and has an estimated salvage value of $10,000 at the end of the recovery period. (a) Prepare a depreciation schedule for the piece of equipment using the straight-line method with a recovery period of seven years. (b) Prepare a depreciation schedule for the piece of equipment using the sum-of- the-years method. (c) Prepare a depreciation schedule using the 200% declining balance method. (d) Prepare a depreciation schedule using the 150% declining balance method. (20 points)
5. A piece of equipment is purchased for $40,000 and has an estimated salvage value of $1,000 at the end of the recovery period. Prepare a depreciation schedule for the piece of equipment using the 150% declining-balance method. (5 points)
6. Prepare a depreciation schedule to be used for tax purposes for $40,000 of computer equipment using the 150% declining-balance method and a half-year convention. Ignore any special depreciation allowances. (10 points)
7. Prepare a depreciation schedule to be used for tax purposes for a $1,170,000 office building. The office building is placed in service in the fifth month of the company’s tax year. The cost of the land is not included in the $1,170,000. Ignore any special depreciation allowances. (10 points)
8. Prepare a depreciation schedule to be used for tax purposes for a $30,000 truck using the 200% declining balance method and the half-year convention. (10 points)
9. The truck in Problem 8 was sold for $4,000 at the end of the fifth year. What is the capital gain or loss of the sale of the truck? (10 points)
10. The truck in Problem 8 was sold for $12,000 at the end of the second year. What is the capital gain or loss of the sale of the truck? (10 points)
11. In 2018, your company purchased a front-end loader for $150,000, a dump truck for $85,000 and a dumping trailer for the dump truck for $38,000. The front-end loader was placed in service in April and the dump truck and dumping trailer were placed in service in July. In 2019, your company purchased three side-dump trailers for $65,000 each and three tractors to purchase to pull the side-dump trailers for $68,000 each, which were placed in service in May. In December 2020, your company purchased a dump truck for $87,000. Determine the depreciation allowed for tax purposes for the 2020 tax year. The tax year runs from January to December. Ignore all Section 179 deductions and bonus depreciation allowances. Hint: The tractors have a different recovery period than the rest of the equipment.