57. Better Berries has a new project that requires $869,000 of equipment. What i

Question

57. Better Berries has a new project that requires $869,000 of equipment. What is the depreciation in year 6 of this project if the equipment is classified as 7-year property for MACRS purposes? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
A. $17,294
B. $17,301
C. $32,988
D. $77,515
E. $77,602

58. Hunter's Paradise purchased $568,000 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $199,500. What is the aftertax cash flow from this sale if the tax rate is 35 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
A. $186,630
B. $191,780
C. $198,410
D. $209,740
E. $216,610

Explanation / Answer

57. The answer to question 57 is D. You must multiply $869,000 by each percentage given in the problem over eight years, for example in year 1, multiply $869,000 * .1429 which equals $124,180.10 of depreciation in year 1 (do this for all years and you will see year 6 is D). Total all years so you can reconcile your math. The total depreciation amount should equal the purchase price of the asset. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

58. You have to figure the depreciation amount for this problem as explained for problem 57. Once you know your depreciation, total the remaining depreciation for years 5-8. This amount will be subtracted from the sales price of the asset, $199,500. The difference between the sales price and remaining depreciation will be subject to tax. You should get a figure of $22,056.80 and you will multiply this by .35 to figure the tax. Next, subtract the tax paid from the sales prices of the asset, and you will get $191,780.12 of after tax cash. Answer is B.

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