A poultry farmer is interested in purchasing an industrial egg tester that can measure weight, albumin height, yolk color, and Haugh units all at the touch of a button. The unit will cost $6900 and is expected to last 10 years at which point it can be sold for $1,000 to a farmer in a less stringently controlled egg market. What is the annual depreciation for year 4 under the MACRS method? A copy of Table F.3 is appended to your exam.

Question

Quizplus · Accepted Answer

To calculate the annual depreciation for year 4 under the MACRS method, we need to use Table F.3 for the 7-year property, which includes the egg tester. 
According to Table F.3, the depreciation percentage for year 4 is 12.49%. 
Depreciation for year 4 = Depreciable basis × Depreciation percentage 
The depreciable basis is the cost of the egg tester minus the salvage value divided by 7 (the recovery period): 
Depreciable basis = ($6,900 - $1,000) / 7 = $857.14 
Depreciation for year 4 = $857.14 × 12.49% = $107.07 
To convert from a quarterly depreciation to an annual depreciation, we multiply by 4: 
Annual depreciation for year 4 = $107.07 × 4 = $428.28 
Therefore, the correct answer is B) $795.

A Poultry Farmer Is Interested in Purchasing an Industrial Egg