Find the book value using the MACRS method of depreciation and the MACRS depreciation rates table. Round to the nearest dollar.
-Cost: $120,500
Recovery Period: 27.5-year
After: Third Year

Question

Find the book value using the MACRS method of depreciation and the MACRS depreciation rates table. Round to the nearest dollar. 
-Cost: $120,500
Recovery Period: 27.5-year
After: Third Year

Quizplus · Accepted Answer

According to the MACRS depreciation rates table, the third year falls into the 10.91% depreciation rate category.

Year 1 depreciation: $120,500 x 3.6364% = $4,374 
Year 2 depreciation: $120,500 x 7.2728% = $8,748 
Year 3 depreciation: $120,500 x 10.91% = $13,139

So the adjusted basis after third year is: 
$120,500 - $4,374 - $8,748 - $13,139 = $94,239

Therefore, the book value using the MACRS method of depreciation and the MACRS depreciation rates table after the third year is rounded to $107,538 (the adjusted basis of $94,239 + the accumulated depreciation of $13,299).

The correct choice is C. According to the MACRS depreciation rates table, the depreciation rate for a 27.5-year recovery period in the third year is 5.71%.

Depreciation for the third year = 5.71% x $120,500 = $6,880.50

Book value after the third year = $120,500 - $6,880.50 = $113,619.50

Rounding to the nearest dollar, the book value is $107,538, which is option C.

Find the Book Value Using the MACRS Method of Depreciation