Dependable Motors just purchased some MACRS 5-year property at a cost of $216,000. The MACRS rates are. 2,.32, and. 192 for years 1 to 3, respectively. Which one of the following will correctly give you the book value of this equipment at the end of year 2? A) $216,000 / (1 +.2 +.32) B) $216,000 * (1 -.2 -.32) C) $216,000 * (.20 +.32) D) [$216,000 * (1 -.20) ] * (1 -.32) E) $216,000 / [ (1 +.20) (1 +.32) ]

Question

Pham

Business

5 November, 13:38

Dependable Motors just purchased some MACRS 5-year property at a cost of $216,000. The MACRS rates are. 2,.32, and. 192 for years 1 to 3, respectively. Which one of the following will correctly give you the book value of this equipment at the end of year 2? A) $216,000 / (1 +.2 +.32) B) $216,000 * (1 -.2 -.32) C) $216,000 * (.20 +.32) D) [$216,000 * (1 -.20) ] * (1 -.32) E) $216,000 / [ (1 +.20) (1 +.32) ]

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Answers (1)

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Shaun Valentine · Answer 1

The correct answer is option B.

Explanation:

The Cost of Property is given at $ 216,000.

The MACRS rates are 0.2, 0.32 and 0.192 for years 1 to 3 respectively.

Depreciation for the year 1 will be

= $216,000*0.2

= $43,200

Depreciation for the year 2 will be

=$216,000*0.32

=$69,120

Total Depreciation for the year 1 and 2 will be

=$43,200+$69,120

=$112,320

The book value of this equipment at the end of year 2

=$216,000-$112,320

=$103,680

On checking the above value with Answer B that is

=$216,000 * (1-0.2-0.32)

=$216,000*0.48

=$103,680