Question

A) The depreciation deduction for year 9 of an asset with a 20-year useful life is $4,900. If the salvage value of the asset was estimated to be 2,500 and straight line depreciation was used to calculate the depreciation deduction for year 9, what was the initial cost of the asset?

B) A lumber company purchases and installs a wood chipper for $205,000. The chipper is classified as MACRS 7-year property. The chipper’s useful life is 9 years. The estimated salvage value at the end of 9 years is $27,500. Using Straight Line depreciation, compute the first year depreciation.

C)  Electric generating and transmission equipment is placed in service at a cost of $3,400,000. It is expected to last 30 years with a salvage value of $250,000. Determine the depreciation deduction and the unrecovered investment during each of the first 4 tax years (for end of year 1, 2, 3, 4).

Answer 1

A)Depreciation for 9th year = 4900

Salvage Value = 2500

Useful Life = 20 years

Initial Cost of Asset = Salvage Value + Useful Life * Depreciation per year as per Straight Line Method

= 2500 + 20*4900

= $100500

B) As Per MACRS 7 year property depreciation rate can be found with the help of the table. It is 14.29% during the first year.

Initial Cost = 205000

Salvage Value = 27500

Depreciation during 1st year = Depreciation rate *(Initial Cost - Salvage Value) = 14.29%*(205000-27500) = $25364.75

C)