Problem #2 (12 points) Lake Company purchased manufacturing equipment five years

Question

Problem #2 (12 points) Lake Company purchased manufacturing equipment five years ago at a cost of $340,000 Freight cost was $25,000 and installation cost $55,000. Lake Company depreciates the equipment as a 7-year class MACRS asset. a) What is the cost basis of the asset? b) What was the depreciation expense for year c) If the asset is disposed of at the end of year 5 what is its book value? d) Calculate the gain or loss on the asset disposal if the asset was sold for $325,000 4? at the end of year 5.

Explanation / Answer

PART - A

Cost of Asset = Equipment cost + Freigh +installation

=340,000+25,000+55,000

=420,000$

Part -B

Depreciation Expenses = Asset cost/Number of Years

=420000/7

=60,000$

Depreciation Year 4 =60,000$

PART -C

Book Value End of 5th Year

=Asset Cost - Total Depreciation 5 years

=420000-(60000*5)

=420000-300000

=120.000$

PART - E

Asset disposed if Asset Sold end of 5th year

=Asset Sold - Asset cost end of 5th year

=325000-120000

Gain = 205,000$

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.