PART I Farris Industrial purchased a machine 5 years ago at a cost of $229,380.
ID: 2784395 • Letter: P
Question
PART I Farris Industrial purchased a machine 5 years ago at a cost of $229,380. The machine is being depreciated using the straight-line method over 8 years. The tax rate is 35 percent and the discount rate is 16 percent. If the machine is sold today for $74,500, what will be the after-tax salvage value?
A. $74,500.00
B. $67,625.09
C. $78,531.13
D. $37,389.69
E. $115,454.05
PART II
Sun Lee's Furniture just purchased $387,269 of fixed assets classified as 5-year property for MACRS. The MACRS table values are 0.2000, 0.3200, 0.1920, 0.1152, 0.1152, and 0.0576 for Years 1 to 6, respectively. What is the amount of the depreciation expense for the third year?
A. $40,449.47
B. $54,019.09
C. $123,926.08
D. $102,004.20
E. $74,355.65
PART III
Lefty's just purchased some equipment that is classified as 7-year property for MACRS. The equipment cost $123,940. The MACRS table values are 0.1429, 0.2449, 0.1749, 0.1249, and 0.0893, for Years 1 to 5, respectively. What will the book value of this equipment be at the end of 4 years?
A. $38,718.86
B. $36,036.68
C. $47,040.00
D. $44,566.04
E. $48,443.24
Explanation / Answer
1.Depreciation per year=(Cost-Residual value)/USeful life
=(229380/8)=$28672.5
Hence book value as on date of sales=229380-(28672.5*5)=$86017.50
Hence loss on sales=(86017.5-74500)=$11517.50
Hence after tax salvage value=Sale proceeds+(Tax rate*Loss on sales)
=74500+(0.35*11517.50)=$78531.13(Approx)
2.
Depreciation expense for the 3rd year=$387269*0.192
=$74355.65(Approx)
3.
Total depreciation=$123940(0.1429+0.2449+0.1749+0.1249)=$85221.144
Hence book value at end of year 4=$123940-85221.144
=$38718.86(Approx).
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