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

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

Step-by-step 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.

Answer 2

b. $62,784

Step-by-step 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.