Final answer:
The Year 3 depreciation deduction for ABC Corp's production machine using the MACRS tables for 5-year property is $6,000.
Step-by-step explanation:
ABC Corp's Year 3 depreciation for the production machine, based on the MACRS accelerated depreciation tables for 5-year property, is calculated as follows. The MACRS depreciation schedule stipulates specific percentages of the asset's cost to be depreciated each year. For 5-year property, these percentages are 20% for Year 1, 32% for Year 2, 19.2% for Year 3, 11.52% for Year 4, and 11.52% for Year 5, with a final 5.76% in Year 6.
Given the original cost of the machine is $31,250, the Year 3 depreciation is determined by applying the specified percentage. In this case, it is 19.2% of $31,250. Therefore, the Year 3 depreciation deduction is calculated as 0.192 x $31,250, which equals $6,000.
This depreciation methodology aligns with the concept of accelerated depreciation, where a larger portion of the asset's cost is allocated to earlier years. This approach recognizes the reality that assets often lose their value more rapidly in the initial years of use. The MACRS system aims to incentivize capital investment by allowing businesses to recover the cost of their assets more quickly through higher depreciation deductions in the earlier years.
In summary, ABC Corp can claim a Year 3 depreciation deduction of $6,000 for the production machine, utilizing the MACRS accelerated depreciation schedule for 5-year property and applying the specified percentage to the original cost of the asset.