Question

Using the MACRS rates from the following table,

what is the book value of a $2,500 computer after 5
years?
Year MACRS Rate
1
2
3
4
5
20.0 %
32.0%
19.2%
11.52 %
11.52 %
[?]
book value =
Round to the nearest hundredth.

Answer 1

The book value of a $2,500 computer after 5 years using the MACRS rates is $144, calculated by subtracting the cumulative depreciation of $2,356 from the original cost.

Step-by-step explanation:

To find the book value of a $2,500 computer after 5 years using the Modified Accelerated Cost Recovery System (MACRS) rates, we need to apply the cumulative depreciation over those years. Here are the steps:

• Year 1 Depreciation: $2,500 x 20% = $500
• Year 2 Depreciation: $2,500 x 32% = $800
• Year 3 Depreciation: $2,500 x 19.2% = $480
• Year 4 Depreciation: $2,500 x 11.52% = $288
• Year 5 Depreciation: $2,500 x 11.52% = $288

Now, let's calculate the cumulative depreciation:

$500 + $800 + $480 + $288 + $288 = $2,356.

Finally, we subtract the cumulative depreciation from the original cost to find the book value:

$2,500 - $2,356 = $144.

Therefore, the book value of the computer after 5 years is $144, when rounded to the nearest hundredth.

Answer 2

To calculate the book value of the $2,500 computer after 5 years using the MACRS rates, you need to apply the depreciation rates for each year to the original cost of the computer.

Year 1: 20.0% depreciation

Depreciation for Year 1 = $2,500 * 20.0% = $500

Book value after Year 1 = $2,500 - $500 = $2,000

Year 2: 32.0% depreciation

Depreciation for Year 2 = $2,000 * 32.0% = $640

Book value after Year 2 = $2,000 - $640 = $1,360

Year 3: 19.2% depreciation

Depreciation for Year 3 = $1,360 * 19.2% = $261.12

Book value after Year 3 = $1,360 - $261.12 = $1,098.88

Year 4: 11.52% depreciation

Depreciation for Year 4 = $1,098.88 * 11.52% = $126.58

Book value after Year 4 = $1,098.88 - $126.58 = $972.30

Year 5: 11.52% depreciation

Depreciation for Year 5 = $972.30 * 11.52% = $111.94

Book value after Year 5 = $972.30 - $111.94 = $860.36

So, the book value of the $2,500 computer after 5 years would be $860.36 (rounded to the nearest hundredth).