Question

11-51 Sarah Jarala recently purchased an asset that she intends to use for business purposes in her small Iceland Tourism business. The asset has MACRS class life of 5 years. Sarah purchased the asset for $85,000 and uses a salvage value for tax purposes of $15,000 (when applicable). Also, the ADR life of the asset is 8 years. (a) Using MACRS depreciation, what is the book value after 2 years? (b) Using MACRS depreciation, what is the book value after 4 years? (c) Using MACRS depreciation, what is the sum of the depreciation charges through the 5th year? (d) Using MACRS depreciation, what is the depre- ciation for the 6th year? (e) Using MACRS depreciation, what is the book value after 8 years? () Using straight-line depreciation (with no half- year convention), what is the book value after the 3rd year? (3) Using straight-line depreciation (with no half- year convention), what is the book value after the 8th year?

Answer 1

As per rules I am answering the first 4 subparts of the question

a: Book value after 2 years= 40800

b: Book value after 4 years = 14688

c: Total depreciation till year 5 = 80104

d: Depreciation in year 6= 4896

Year	Starting book value	Depreciation	Book value at year end
1	85000	17000	68000
2	68000	27200	40800
3	40800	16320	24480
4	24480	9792	14688
5	14688	9792	4896
6	4896	4896	0

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