O\'Leary Engineering Corp. has been depreciating a $50,000 machine for the last
ID: 1101719 • Letter: O
Question
O'Leary Engineering Corp. has been depreciating a $50,000 machine for the last 3 years. The asset was just sold for 60% of its first cost. What is the size of the receptured depreciation or loss at disposal using the following depreciaiton methods ?
a) sum-of-years'-digits with N=8 and S=2000
b) Straight-line depreciation with N=8 and S=2000
c) MACRS GDS depreciation, classified as a 7 year property
note: the answers on the back of the text are as follows: a) $8000 recepture
b) $2000 loss
c) $3762.5 recepture w/50% final depr.
Explanation / Answer
Year
MACRS,rt * Cost Basis
dt
Cum dt
Book Value
1
14.29%*$50,000
$7,145
$7,145
$42,855
2
24.49%*$50,000
$12,245
$19,390
$30,610
3
17.49%*$50,000
$8,745
$28,135
$21,865
Total Depreciation = $28,135
Book value at the end of year 3 = $50,000-$18,000 = $21,865
The Item sold for $30,000 ($50,000x60%)
$30,000(sale price) - $26237.5(book value) = $3762.5recaptured depreciation
Year
MACRS,rt * Cost Basis
dt
Cum dt
Book Value
1
14.29%*$50,000
$7,145
$7,145
$42,855
2
24.49%*$50,000
$12,245
$19,390
$30,610
3
17.49%*$50,000
$8,745
$28,135
$21,865
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