Question

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

1. Cost of the router = $240,000

As per MACRS-GDS schedules, Router falls under MACRS 7 year property as it is not covered under any other class and its life is greater than 10 years but less than 16 years

2. Depreciation for year 5

Rate of depreciation for the year 5 = 8.93% (as per MACRS table for 7 year property)

Depreciation = 240000 * 8.93% = 21432

3. Book value for year 5

Book value for year 5 = Book value - Accumulated depreciation

Calculation of accumulated depreciation:

Year	Depreciation Rate	Depreciation
1	14.29%	34296
2	24.49%	58776
3	17.49%	41976
4	12.49%	29976
5	8.93%	21432
Accumulated depreciation		186456

Book value for year 5 = 240000 - 186456 = 53544

4. Depreciation deduction if asset is sold in 5th year

Depreciation deduction = Value of asset * (Remainder life of asset / Useful life)

= 240000 * (2/7)

= 68571