What is the machine’s book value after 5 years of depreciation? If the machine is sold for $20,000 early in Year 7, how much gain on sale or recaptured depreciation is there?
What is the machine’s book value after 5 years of depreciation? If the machine is sold for $20,000 early in Year 7, how much gain on sale or recaptured depreciation is there?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A numerically controlled milling machine was purchased for $95,000. The estimated salvage value was $15,000 after 15 years. What is the machine’s book value after 5 years of
(a) Straight-line depreciation
(b) 150% declining balance depreciation
(c) 80% bonus depreciation with the balance using 7-year MACRS depreciation
(d) 7-year MACRS depreciation
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Step 1: Introduce the concept of Straight-line depreciation.
VIEWStep 2: (a) Determine the book value after 5 years and gain on sale under straight line depreciation.
VIEWStep 3: (b) Determine the book value after 5 years and gain on sale under 150% declining depreciation.
VIEWStep 4: (c) Determine the book value after 5 years and gain on sale under 80% bonus depreciation.
VIEWStep 5: (d) Determine the book value after 5 years and gain on sale under 7 MACRS depreciation.
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