In January 2011, Rogers Co. purchased a machine that cost $85,000. The equipment
ID: 2443690 • Letter: I
Question
In January 2011, Rogers Co. purchased a machine that cost $85,000. The equipment is estimated to have a 5-year life and a salvage value of $15,000.
a) Compute the amount of depreciation expense for 2011 and 2012 using the double declining balance method.
b) Compute the amount of MACRS depreciation for the above equipment for 2011 assuming the property is 5 year property and the MACRS percentage is 20%.
Explanation / Answer
January 2011 = Purchased : Machine Cost = $85,000. Estimated Life = 5 years Salvage Value = $15,000. a) Compute the amount of depreciation expense for 2011 and 2012 using the double declining balance method. Depreciation = Book value x Depreciation rate Book value = Cost - Accumulated depreciation Depreciation rate for double declining balance method = Straight line depreciation rate x 200% Useful life = 5 years --> Straight line depreciation rate = 1/5 = 20% per year Depreciation rate for double declining balance method = 20% x 200% = 20% x 2 = 40% per year Depreciation for 2011 = $85,000 x 40% = $34,000 Depreciation for 2012 = ($85,000 - $34,000) x 40% = $20,400 b) Compute the amount of MACRS depreciation for the above equipment for 2011 assuming the property is 5 year property and the MACRS percentage is 20%. (NOTE: depending on the amount of years, MACRS depreciation has a table for each one, just look it up to get percentages) $85,000 Year Percent Cost Deduction 1 2011 20% X 85,000 = 17,000 2 2012 32% X 85,000 = 27,200 3 2013 19.2% X 85,000 = 16,320 4 2014 11.52% X 85,000 = 9,792 5 2015 11.52% X 85,000 = 9,792 6 2016 5.76% X 85,000 = 4,896 TOTALS 100% = 85,000 note that even though the asset is 5-year class property, the cost is written off over a period of six tax years. This is due to the convention under MACRS, which provides for six months of depreciation during the year the asset is purchased and six months of depreciation in the final year.The half-year convention.
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