### Educational Exercise: Depreciation Calculation ExampleA manufacturer of aerospace products purchased three flexible assembly cells for $450,000 each. Delivery and insurance charges were $40,000, and installation of the cells cost another $54,000. **Instructions:**Determine the following:a. **Cost Basis of the Three Cells** - Calculate the total cost including purchase, delivery, insurance, and installation.b. **Class Life of the Cells** - Find the class life for the assembly cells in years, using standard depreciation tables.c. **MACRS Depreciation in Year Three** - Using the Modified Accelerated Cost Recovery System (MACRS), calculate the depreciation for the third year.d. **Recaptured Depreciation** - If the cells are sold for $100,000 each at the end of year seven, determine the amount of recaptured depreciation.**Reference Materials:**- Click the provided links to view a partial listing of depreciable assets used in business and the GDS Recovery Rates.**Blank Fields for Solutions:**- a. Cost basis (nearest thousand): $[ ] thousand - b. Class life (nearest year): [ ] years- c. MACRS depreciation year three (nearest thousand): $[ ] thousand- d. Recaptured depreciation (nearest thousand): $[ ] thousand**Note:**Fill in the blanks with calculated values based on the given data and instructions. ### GDS Recovery Rates ($ r_k $) for the Six Personal Property Classes#### Recovery Period (and Property Class)This table presents the General Depreciation System (GDS) recovery rates ($ r_k $) for different personal property classes over various recovery periods. Each column represents a different recovery period, reflecting how assets depreciate over time.| Year | 3-year$^a$ | 5-year$^a$ | 7-year$^a$ | 10-year$^a$ | 15-year$^b$ ||------|--------------|--------------|--------------|---------------|---------------|| 1 | 0.3333 | 0.2000 | 0.1429 | 0.1000 | 0.0500 || 2 | 0.4445 | 0.3200 | 0.2449 | 0.1800 | 0.0500 || 3 | 0.1481 | 0.1920 | 0.1749 | 0.1440 | 0.0855 || 4 | 0.0741 | 0.1152 | 0.1249 | 0.1152 | 0.0770 || 5 | | 0.1152 | 0.0893 | 0.0922 | 0.0693 || 6 | | 0.0576 | 0.0892 | 0.0737 | 0.0623 || 7 | | 0.0893 | 0.0655 | | 0.0590 || 8 | | 0.0446 | 0.0655 | | 0.0590 || 9 | | | 0.0656 | | 0.0591 || 10 | | | 0.0655 | | 0.0590 || 11 | | | | 0.0328 | 0.0591 ||

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A manufacturer of aerospace products purchased three flexible assembly cells for $450,000 each. Delivery and insurance charges were $40,000, and installation of the cells cost another $54,000. a. Determine the cost basis of the three cells. b. What is the class life of the cells? c. What is the MACRS depreciation in year three? d. If the cells are sold to another company for $100,000 each at the end of year seven, how much is the recaptured depreciation? Click the icon to view the partial listing of depreciable assets used in business. Click the icon to view the GDS Recovery Rates (rk). a. The cost basis of the three cells is $ thousand. (Round to the nearest whole number.) b. The class life of the cells is years. (Round to the nearest whole number.) c. The MACRS depreciation in year three is $ thousand. (Round to the nearest whole number.)

A manufacturer of aerospace products purchased three flexible assembly cells for $450,000 each. Delivery and insurance charges were $40,000, and installation of the cells cost another $54,000. a. Determine the cost basis of the three cells. b. What is the class life of the cells? c. What is the MACRS depreciation in year three? d. If the cells are sold to another company for $100,000 each at the end of year seven, how much is the recaptured depreciation? Click the icon to view the partial listing of depreciable assets used in business. Click the icon to view the GDS Recovery Rates (rk). a. The cost basis of the three cells is $ thousand. (Round to the nearest whole number.) b. The class life of the cells is years. (Round to the nearest whole number.) c. The MACRS depreciation in year three is $ thousand. (Round to the nearest whole number.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

### Educational Exercise: Depreciation Calculation Example

A manufacturer of aerospace products purchased three flexible assembly cells for $450,000 each. Delivery and insurance charges were $40,000, and installation of the cells cost another $54,000.

**Instructions:**

Determine the following:

a. **Cost Basis of the Three Cells**
- Calculate the total cost including purchase, delivery, insurance, and installation.

b. **Class Life of the Cells**
- Find the class life for the assembly cells in years, using standard depreciation tables.

c. **MACRS Depreciation in Year Three**
- Using the Modified Accelerated Cost Recovery System (MACRS), calculate the depreciation for the third year.

d. **Recaptured Depreciation**
- If the cells are sold for $100,000 each at the end of year seven, determine the amount of recaptured depreciation.

**Reference Materials:**

- Click the provided links to view a partial listing of depreciable assets used in business and the GDS Recovery Rates.

**Blank Fields for Solutions:**

- a. Cost basis (nearest thousand): $[ ] thousand
- b. Class life (nearest year): [ ] years
- c. MACRS depreciation year three (nearest thousand): $[ ] thousand
- d. Recaptured depreciation (nearest thousand): $[ ] thousand

**Note:**
Fill in the blanks with calculated values based on the given data and instructions.

### GDS Recovery Rates ($ r_k $) for the Six Personal Property Classes

#### Recovery Period (and Property Class)

This table presents the General Depreciation System (GDS) recovery rates ($ r_k $) for different personal property classes over various recovery periods. Each column represents a different recovery period, reflecting how assets depreciate over time.

| Year | 3-year$^a$ | 5-year$^a$ | 7-year$^a$ | 10-year$^a$ | 15-year$^b$ |
|------|--------------|--------------|--------------|---------------|---------------|
| 1 | 0.3333 | 0.2000 | 0.1429 | 0.1000 | 0.0500 |
| 2 | 0.4445 | 0.3200 | 0.2449 | 0.1800 | 0.0500 |
| 3 | 0.1481 | 0.1920 | 0.1749 | 0.1440 | 0.0855 |
| 4 | 0.0741 | 0.1152 | 0.1249 | 0.1152 | 0.0770 |
| 5 | | 0.1152 | 0.0893 | 0.0922 | 0.0693 |
| 6 | | 0.0576 | 0.0892 | 0.0737 | 0.0623 |
| 7 | | 0.0893 | 0.0655 | | 0.0590 |
| 8 | | 0.0446 | 0.0655 | | 0.0590 |
| 9 | | | 0.0656 | | 0.0591 |
| 10 | | | 0.0655 | | 0.0590 |
| 11 | | | | 0.0328 | 0.0591 |
|

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