A wood products company has decided to purchase new logging equipment for $100,0

Question

A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new equipment will be kept for 10 years before being sold. Its estimated SV at the time is expected to be $5,000. Use this information to solve Problems 7-68 through 7-72 7-68. The recovery period of the asset, using the GDS guidelines, is (b) 7 years (c) 5 years (a) 10 years (d) 3 years 7-69. Using the SL method, the depreciation on the equipment over its depreciable life period is (b) $9,500 (c) $8,000 (a) $10,500 (d) $7,000 7-70. Using the SL method, the BV at the end of the depreciable life is (a) $11,811 (b)$10,000 (c) $5,000 (d) $0 7-71. Using the MACRS (GDS recovery period), the depreciation charge permissible at year 6 is equal to (a) $9,812 (b) $6,336 (c) $4,912 (d) s0

Explanation / Answer

7-68) The correct option is b) 7 years. The recovery period of Office Furniture, Equipment, Fixtures, Desks, files. Safe etc. is 7 years and in the given case the asset is an equipment, therefore its recovery period will be 7 years.

7-69) The correct option is b) $9,500. The depreciation on Equipment over its depreciable life of 10 years using the Straight line method is calculated as follows:-

Depreciation = (Cost-Salvage Value)/Depreciable life = ($100,000-$5,000)/10 years = $9,500

7-70) The correct option is c) $5,000. As given in the question salvage value at the end of 10 years is $5,000, thus in staright line method the salvage value of asset at the end of depreciable life is its book value.

7-71) The correct option is a) $9,812

The cost basis(B) of new logging equipment is

B = Purchase price (new equipment) + Book Value (old equipment)

B = $100,000+$10,000 = $110,000

Depreciation rate for 6th year as per MACRS (GDS)(7 year period) = 8.92%

Depreciation for 6th year = $110,000*8.92% = $9,812

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.