RP&A, Inc.purchased some fixed assets four years ago at a cost of $19,800.It no longer needs these assets so is going to sell them today at a price of $3,500.The assets are classified as 5-year property for MACRS.What is the current book value of these assets? $$\text { MACRS 5-year property }$$
$\begin{array}{ll}
\underline{\text { Year }} & \underline{\text { Rate }} \
1 & 20.00 \% \
2 & 32.00 \% \
3 & 19.20 \% \
4 & 11.52 \% \
5 & 11.52 \% \
6 & 5.76 \%
\end{array}$

Question

RP&A, Inc.purchased some fixed assets four years ago at a cost of $19,800.It no longer needs these assets so is going to sell them today at a price of $3,500.The assets are classified as 5-year property for MACRS.What is the current book value of these assets? $$\text { MACRS 5-year property }$$
$\begin{array}{ll}
\underline{\text { Year }} & \underline{\text { Rate }} \
 1 & 20.00 \% \
2 & 32.00 \% \
3 & 19.20 \% \
4 & 11.52 \% \
5 & 11.52 \% \
6 & 5.76 \%
\end{array}$

Quizplus · Accepted Answer

To calculate the current book value of the assets, we need to determine the accumulated depreciation over the past four years. Using the MACRS depreciation rates provided, we can calculate the accumulated depreciation for each year as follows:

Year 1: $19,800 x 20.00% = $3,960
Year 2: ($19,800 - $3,960) x 32.00% = $4,435.20
Year 3: ($19,800 - $3,960 - $4,435.20) x 19.20% = $2,165.05
Year 4: ($19,800 - $3,960 - $4,435.20 - $2,165.05) x 11.52% = $1,009.72

Therefore, the accumulated depreciation over the past four years is $11,569.97. To determine the current book value, we subtract the accumulated depreciation from the original cost of the assets:

$19,800 - $11,569.97 = $8,230.03

However, since the assets are being sold for $3,500, the company will record a loss on the sale equal to the difference between the sale price and the current book value:

$3,500 - $8,230.03 = -$4,730.03

The negative number indicates a loss, which will be recorded on the company's income statement. Therefore, the best choice is B) $3,421.44, which represents the current book value of the assets before accounting for the loss on the sale.

RP&A, IncPurchased Some Fixed Assets Four Years Ago at a Cost