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A manufacturer of aerospace products purchased five flexible assembly cells for ​$520000 each. Delivery and insurance...

A manufacturer of aerospace products purchased five flexible assembly cells for ​$520000 each. Delivery and insurance charges were ​$35000​, and installation of the cells cost another ​$46000. a. Determine the cost basis of the five cells. b. What is the class life of the​ cells? c. What is the MACRS depreciation in year seven​? d. If the cells are sold to another company for ​$140000 each at the end of year six​, how much is the recaptured​ depreciation?

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Answer #1

a) Calculating the cost basis of 5 cells.

Cost Basis = (5 * Purchase Price of Cell) + Installation Cost + Insurance Cost

= (5 * $520000) + $46,000 + $35,000

= $2600000 + $46,000 + $35,000

= $2,681,000

b) From the MACRS table, the class life of aerospace products are to be identified.

Which is 10 years, with GDS 7 year period.

c) Calculating MACRS depriciation in year seven.

dk = Cost Basis * Recovery Rate.

Now, with GDS 7 year period, find the recovery rate for 7th year from the Recovery Rate table.

which is 0.0893.

Therefore, d7= $2,681,000 * 0.0893

= $239413.3

d) Calculating recaptured depriciation, after 6 years.

dr = (5 * Selling Price) * RR

= $7,00,000 * 0.0892 , RR for 6th year is 0.0892, identify it from the table.

= $62440

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