Question

At Year 0, Vermont wood manufacturers Inc. purchased a light-duty delivery truck for $32,000 that has a 7-year service life. The truck was placed in service from Year 1. At the end of Year 7, it will be sold at a salvage value of $3000. The light-duty delivery truck has been depreciated according to a 7-year MACRS property class:

a. Calculate the annual depreciation allowances over 7 years. (8 points)

b. Calculate the annual book values over 7 years. (8 points)

c. Is there a capital gains or loss and if so, how much is the gain/loss?

Answer 1

a & b)

According to a 7-year MACRS property class, the annual depreciation charges and book value is given in the following table.

c) From the table it is seen that the book value at the end of 7 years is $1,427. If it will be sold at a salvage value of $3000, then there is a capital gain of $1,573 (i.e., $3,000 - $1,427).