Question

6) New York Limousine Service owns 10 limos and uses the units of production method in computing depreciations on its limos. Each limo costing $38,000 is expected to be driven 150,000 miles and is expected to have a salvage value of $4,500. Limo # 1 was driven 38,000 miles in year 1 and 36,000 miles in year 2. Determine the depreciation for each year and the book value at the end of year 2.

Use this information to answer questions 7 and 9

Consider a seven year MACRS asset that was purchased for $55,000. If the asset were disposed of in year 8 with salvage value of $3,500, compute:

7) The allowed depreciation:

8) The book value is:

9) Taxable gain is:

Answer 1

Question 1:

6.)

Year	Beginning book value of asset	Depreciation charge	Ending book value of asset
1	$38,000	$9627 (38000÷ 15000 × 38000)	$28,373
2	$28,373	$9120 (36000÷ 15000 × 38000)	$19,253

7. Total allowed depreciation = $9627 + $9120 = $18,747

8. Book value at year 2 = $19,253

9. Taxable gain = $0, Since the Book value is higher than salvage value.

Question 2:

Depreciation shedule:

Years	Rate	Depreciation ($55,000 × rate)	Book value
1	.143	7865	47135
2	.245	13475	33660
3	.175	9625	24035
4	.125	6875	17160
5	.089	4895	12265
6	.089	4895	7370
7	.089	4895	2475
8	.045	2475	0

7. Total allowed depreciation = $55,000

8. Book value at year 8 = $0

9. Taxable gain = salvage value - book value = $3,500 - $0 = $3,500