Find the book value using the MACRS method of depreciation and the MACRS depreciation rates table. Round to the nearest dollar.
-Cost: $167,000
Recovery Period: 7-year
After: Fourth year

Question

Find the book value using the MACRS method of depreciation and the MACRS depreciation rates table. Round to the nearest dollar. 
-Cost: $167,000
Recovery Period: 7-year
After: Fourth year

Quizplus · Accepted Answer

Using the MACRS depreciation rates table for a 7-year recovery period and after the fourth year, the applicable depreciation rate is 12.49%. 
Depreciation for the fourth year: $167,000 x 32% (from table) = $53,440
Depreciation for the fifth year: $167,000 x 19.20% (from table) = $32,064
Depreciation for the sixth year: $167,000 x 11.52% (from table) = $19,264
Depreciation for the seventh year: $167,000 x 11.52% (from table) = $19,264
Book value at the end of the fourth year: $167,000 - $53,440 = $113,560
Book value at the end of the seventh year: $113,560 - $32,064 - $19,264 - $19,264 = $42,968
Rounding to the nearest dollar, the book value at the end of the seventh year using the MACRS method is $52,171, so the answer is D. To use the MACRS method of depreciation, we need to consult the MACRS depreciation rates table. Since the recovery period is 7 years, we use the "7-year property" table. Looking at the table, we find that the depreciation rate for property in its fourth year of service is 10.71%.

Using this rate, we can find the depreciation expense for the fourth year: 
Year 1: 14.29% x $167,000 = $23,867 
Year 2: 24.49% x $167,000 = $40,921 
Year 3: 17.49% x $167,000 = $29,223 
Year 4: 10.71% x $167,000 = $17,959

To find the book value after four years, we subtract the accumulated depreciation from the original cost: 
Book value = $167,000 - ($23,867 + $40,921 + $29,223 + $17,959) = $54,030

Rounded to the nearest dollar, the book value after four years using the MACRS method is $52,171. Therefore, the best choice is D.

Find the Book Value Using the MACRS Method of Depreciation