(10 pts) Equipment costing S25,000 that is a MACRS 3-year property is disposed o
ID: 1127059 • Letter: #
Question
(10 pts) Equipment costing S25,000 that is a MACRS 3-year property is disposed of during the third year for $10,000. With MACRS method only half of the depreciation is allowed in the recovery year. 3. (a) What is the book value of this equipment when it is dispose of in the third year? (5 pts) (A) $8889 (B) $3711 (C) S5562 (b) What is the amount of depreciation recapture, ordinary losses, or capital gains associated with the disposal of this (C) S5120 (D) $1860 equipment. (5 pts) (B) $6289 (B) $8,889 (D) $8,140Explanation / Answer
3.
(a).
B.$3711
Working note:
Book value at the time of disposal= initial book value*(1 - (depreciation in year 1+ depreciation in year 2 + (depreciation in year 3)/2)
Book value at the time of disposal = 25000*(1-(33.33% + 44.45% + 14.81%/2))
Book Value at the time of disposal = $3703.75 ( closest to $3711)
(b).
$6289
Working note:
Capital gain = price of disposal – book value = 10000-3711 = $6289
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