need help with steps please A machine used in the manufacture of fabricated meta
ID: 2481910 • Letter: N
Question
need help with steps please A machine used in the manufacture of fabricated metal products at Crimson Tide Inc., with a useful life of 12 years, is to be depreciated by the MACRS method for tax depreciation purposes. The machine has a first cost of $23,000 with a $3000 salvage value. The company's controller wants to understand the effects of the difference in the annual depreciation charge for SL and MACRS with CDS recovery period. Using a half-year convention for both methods, determine the differences in the book value if the machine is sold at the end of year 5.Explanation / Answer
Answer :
BVat the 5th year =$ 15499.99
MACRS: BV5=$6158.25
The difference=$9341.74
Working notes for the above answer is as under
We have provided with the information as follow,
useful life of 12 years
The machine has a first cost of $23,000
salvage value=$ 3000
We have to use a half-year convention for both methods to determine the differences in the book value if the machine is sold at the end of year 5
For SL,dk=(B-SVN)/N and BVk=B-kdk
d5=(23,000-3000)/12
=1666.67
BV5
=23,000-(4.5)(1666.67)
=15,499.99
For MACRS, from Table 7.2, a recovery period of 7 years should be used.
BV5
=23,000-(0.1429+0.2449+0.1749+0.1249+0.0893/2)(23,000)
=6158.25
The difference
= $ 15,499.99- $ 6158.25
= $ 9341.74
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