Phil owns a ranch business and uses four-wheelers to do much of his work. Occasi
ID: 2552916 • Letter: P
Question
Phil owns a ranch business and uses four-wheelers to do much of his work. Occasionally, though, he and his boys will go for a ride together as a family activity. During year 1, Phil put 916 miles on the four-wheeler that he bought on January 15 for $10,000. Of the miles driven, only 261 miles were for personal use. Assume four-wheelers qualify to be depreciated according to the five-year MACRS schedule and the four-wheeler was the only asset Phil purchased this year. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
a. Calculate the allowable depreciation for year 1 (ignore the §179 expense and bonus depreciation).
b. Calculate the allowable depreciation for year 2 if total miles were 1,050 and personal use miles were 430 (ignore the §179 expense and bonus depreciation).
Explanation / Answer
a. Business travel expense = (total miles-personal travel miles)/total miles*total cost
= (916-261)/916*10,000
= $7,150.66
For depreciation computation half year convention will be used. Thus depreciation rate = 7150.66*20% = $1,430.13
b. For year 2 business travel expense = (1050-430)/1050*10,000 = $5,904.76
Depreciation = 32% of 5904.76
= $1,889.52