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Chapter_10_solutions_to_assigned_problems_Solutions

# Chapter_10_solutions_to_assigned_problems_Solutions -...

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Chapter 10 solution to assigned problems 26. In 2008, Terrell, Inc., purchases machinery costing \$548,000. Its 2008 taxable income before considering the Section 179 deduction is \$95,000. a. What is Terrell's maximum Section 179 deduction in 2008? Explain. Because Terrell acquired over \$510,000 of qualifying Section 179 property, the annual investment limit applies. The \$128,000 annual deduction is reduced dollar for dollar by the amount of the investment in qualifying property in excess of \$510,000. Terrell's Section 179 deduction is reduced by \$38,000 (\$548,000 - \$510,000) and its Section 179 deduction is limited to \$90,000 (\$128,000 - \$38,000). The taxable income limit does not affect the amount of the 2008 Section 179 deduction because the \$95,000 taxable income exceeds the \$90,000 maximum election to expense. b. What is the depreciable basis of the equipment? The depreciable basis of the equipment is \$458,000 (\$548,000 - \$90,000). The acquisition cost of the equipment is reduced by the amount of the Section 179 election for the current year.

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37. The United Express Company begins business in August 2008 by purchasing the assets listed in the table below. Calculate the maximum MACRS depreciation on the assets. Asset Cost Trucks \$ 98,000 Tractor units 55,000 Office equipment 100,000 To claim the maximum MACRS depreciation, the company should elect to expense the maximum \$128,000 allowed under Section 179 for 2008. In addition, the company should elect to expense the assets with the longest useful life. United's cost recovery deduction is \$160,333. Office Equipment (7-year life): Election to expense \$ 100,000 Trucks (5-year life): Election to expense(\$128,000 - \$100,000) 28,000 Depreciable basis (\$98,000 - \$28,000) \$70,000 First-year depreciation (Table A10-2) x 20 % Cost-recovery on trucks 14,000 Tractor Units ( 3-year life): Depreciable basis \$55,000 First-year depreciation (Table A10-2) x 33.33 % Cost-recovery on tractor units 18,333 Total 2008 cost recovery \$ 160,333
38.

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