Multiple Choice
Which of the following accounts is subject to depreciation?
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8. Long Lived Assets
Depreciation: Summary of Main Methods
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Under the half-year convention, over how many tax years will a 3-year asset be depreciated for tax purposes?
A
3.5 tax years
B
3 tax years
C
2.5 tax years
D
4 tax years
Verified step by step guidance1
Understand the half-year convention: This method assumes that assets are placed in service or disposed of at the midpoint of the year, regardless of the actual date. This results in half a year of depreciation in the first year and the remaining half in the final year.
Identify the asset's useful life: The problem states that the asset has a 3-year useful life for tax purposes.
Apply the half-year convention: Under this convention, the first year will have half a year of depreciation, followed by full years of depreciation for the next 3 years, and the remaining half year of depreciation in the fourth year.
Calculate the total number of tax years: Adding the half year from the first year, the 3 full years, and the half year from the fourth year results in depreciation spread over 4 tax years.
Verify the reasoning: Ensure that the application of the half-year convention aligns with tax regulations and the problem's context, confirming that the depreciation spans 4 tax years.
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