Morris Motors just purchased some MACRS 5-year property at a cost of $216,000.Which one of the following will correctly give you the book value of this equipment at the end of year 2? $$\begin{array}{l}
\text { MACRS 5-year property }\
\begin{array} { c c }
\frac { \text { Year } } { 1 } & \frac { \text { Rate } } { 20.00 \% } \
2 & 32.00 \% \
3 & 19.20 \% \
4 & 11.52 \% \
5 & 11.52 \% \
6 & 5.76 \%
\end{array}
\end{array}$$

Question

Morris Motors just purchased some MACRS 5-year property at a cost of $216,000.Which one of the following will correctly give you the book value of this equipment at the end of year 2? $$\begin{array}{l}
\text { MACRS 5-year property }\
\begin{array} { c c } 
\frac { \text { Year } } { 1 } & \frac { \text { Rate } } { 20.00 \% } \
2 & 32.00 \% \
3 & 19.20 \% \
4 & 11.52 \% \
5 & 11.52 \% \
6 & 5.76 \%
\end{array}
\end{array}$$

Quizplus · Accepted Answer

To find the book value of the equipment at the end of year 2, we need to first calculate the depreciation taken in the first two years.

Year 1 depreciation = cost * rate for year 1 = $216,000 * 0.20 = $43,200

Year 2 depreciation = cost * rate for year 2 = $216,000 * 0.32 = $69,120

Total depreciation taken in the first two years = $43,200 + $69,120 = $112,320

Book value at end of year 2 = cost - total depreciation taken in first two years = $216,000 - $112,320 = $103,680

Therefore, the correct answer is B) $216,000 × (1 - 0.20 - 0.32) which simplifies to $103,680.

Morris Motors Just Purchased Some MACRS 5-Year Property at a Cost