Vendome Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: Vendome plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.)
The MACRS deduction in Year 2 would be

Question

Vendome Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes:  Vendome plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.)
The MACRS deduction in Year 2 would be

Quizplus · Accepted Answer

According to the MACRS table, the equipment falls under the 5-year category, which has a depreciation percentage of 20.00%.

Using the MACRS formula: 
Year 1 = (cost of equipment) x (MACRS percentage) = $1,000,000 x 0.20 = $200,000 
Year 2 = (cost of equipment - cumulative depreciation of previous years) x (MACRS percentage) = ($1,000,000 - $200,000) x 0.32 = $224,000 
Year 3 = (cost of equipment - cumulative depreciation of previous years) x (MACRS percentage) = ($1,000,000 - $200,000 - $224,000) x 0.192 = $128,640 
Year 4 = (cost of equipment - cumulative depreciation of previous years) x (MACRS percentage) = ($1,000,000 - $200,000 - $224,000 - $128,640) x 0.1152 = $77,798.47 
Year 5 = (cost of equipment - cumulative depreciation of previous years) x (MACRS percentage) = ($1,000,000 - $200,000 - $224,000 - $128,640 - $77,798.47) x 0.1152 = $50,335.93 
Year 6 = (cost of equipment - cumulative depreciation of previous years) x (MACRS percentage) = ($1,000,000 - $200,000 - $224,000 - $128,640 - $77,798.47 - $50,335.93) x 0.0576 = $21,150.96 
Year 7 = (cost of equipment - cumulative depreciation of previous years) x (MACRS percentage) = ($1,000,000 - $200,000 - $224,000 - $128,640 - $77,798.47 - $50,335.93 - $21,150.96) x 0.0576 = $11,936.06

Therefore, the MACRS deduction in Year 2 would be $224,000.

Vendome Company Is Considering the Purchase of the Following Computer