Question

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)]

Answer 1

Answer:

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