Question

Question 3 (40 points) A high-precision programmable router for shaping furniture components (manufacturing equipment) is purchased by Henredon for $240,000. It is expected to last 12 years. Calculate the depreciation deduction and book value for each year using MACRS-GDS allowances. a. What is the MACRS-GDS property class? (format example: 3 year) Calculate the depreciation deduction using MACRS-GDS allowances for year 5 = $. Please provide your response to the nearest integer with no comma or $ sign. Calculate the book value using MACRS-GDS allowances for year 5 = $. Please provide your response to the nearest integer with no comma or $ sign. Assume the asset is sold during the 5th year of use. Calculate the depreciation deduction using MACRS-GDS allowances for year 5 - $. Please provide your response to the nearest integer with no comma or $ sign.

Answer 1

5 year. It is a qualified technological equipment.

GDS uses 200% DB for 5-year Non farm property. It will use SL only if it provides equal or greater deduction.

depreciation for first year for mid year = 20%*240000 = 48000

Basis adjusted by 48000 => 240000-48000 = 192000(new basis after 0.5 year, recovery of 4.5 years left)

depreciation for mid of second year = 0.4*192000 = 76800

basis adjusted by 76800 = 192000 - 76800 = 115200(new basis after 1.5 year, recovery of 3.5 years left)

depreciation for mid of third year = 0.4*115200 = 46080

basis adjusted by 46080 = 115200-46080 = 69120(new basis after 2.5 year, recovery of 2.5 years left)

depreciation for mid of fourth year = 0.4*69120 = 41472

basis adjusted by 41472 = 69120-41472 = 27648(new basis after 3.5 year, recovery of 1.5 years left)

depreciation for mid of fifth year = 0.67*41472 = 27648

[ after the fourth year mid year deduction, the balance is 41472 and time period of 1.5 years left. So, SL method is applied. for the fifth year mid year deduction = 1/1.5 *100 = 67% deduction applied which provides higher deduction as compared to 200% DB]

basis adjusted by 27648 = 41472-27648 = 13824(new basis after 4.5 year, recovery of 0.5 years left)

depreciation for last half year = 100%*13824 [using S/L method] = 13824