Question

You just purchased some equipment that is classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. The equipment cost $218,000. What will the book value of this equipment be at the end of 3 years should you decide to resell the equipment at that point in time?a. $58, 467.20.b. $62, 784.00.c. $42, 336.67.d. 67, 670.40.e. $38, 532.80.

Answer 1

Answer:

b. $62,784

Explanation:

Depreciation is the expense of an asset due to physical wear and tear of the equipment.

Book value is the net of depreciation value. It is calculated after deducting the accumulated depreciation from the cost of the asset.

MACRS  = Cost x MACRS rate for the year

Year     MACRS    Depreciation    Balance

  0                                                  $218,000

  1            0.2           $43,600        $174,400

  2           0.32          $69,760       $104,640

  3           0.192        $41,856        $62,784

Opening Book value of next year is actually the closing book value of prior years.

Answer 2

Answer:

The correct answer is option (b) $62,784.00

Explanation:

From the given question, we find the book  equipment value at the end of 3 years

Year        MACRS %  l Annual depreciation  Annual deprecation  Book value

1                  0.2                  218000*.2               43600     174400

2                0.32               218000*.32              69760      104540

3                0.192             218000*192              41856         62784

4                0.1152          218000* .1152            251126     37670.4

5                 0.1152        218000* .1152             25113.6  12556.8

6              0.0576       218000* .0576             12556.8           0

Therefore, from the  above depreciation schedule.

At the end of 3 years the book value is $62784.