Question

lake company purchased manufacturing equipment five years ago at a cost of $340000. Freight cost was $25000 and installation cost $55000. Lake company depreciates the equipment as a 7-YEAR class MACRS asset.

a) What is the cost basis of the asset?

b) What was the depreciation expense for year 4?

c) If the asset is disposed of the end of year 5, what is its cook value?

d) Calculate the gain or loss on the asset disposal if the asset was sold for $325000 at the end of year 5.

Answer 1

	cost of machine		340000
	freight		25000
	installation		55000
1-	depreciation base		420000
year	cost of machine	macrs rate	annual depreciation = depreciation base* rate	year end book value = value at start of year-annual depreciation
1	420000	14.29%	60018	359982
2	420000	24.49%	102858	257124
3	420000	17.49%	73458	183666
4	420000	12.49%	52458	131208
5	420000	8.93%	37506	93702
6	420000	8.92%	37464	56238
7	420000	8.93%	37506	18732
	Depreciation expense for year 4			52458
	Asset book value at the end of year 5			93702
	gain or loss on disposal of assets	325000-93702	231298