Question

tinney​ & Smyth Inc. is considering the purchase of a new batch​ polymer-bonding machine for producing Crazy​ Rubber, a​ children's toy that is​ soft, pliable but also bouncy. The machine will increase EBITDA by $275,000 per year for the next two years. Assume that operating cash flows occur at the end of each year. The​ machine's purchase price is $305,000 and the salvage value at the end of two years is $67,100.The machine is classified as 3-year property. To run the Crazy Rubber production line the company will need to purchase an inventory of polydimethylsiloxane and boric acid for a total cost of $20,000.

The MACRS depreciation rates for the first two years are 33.33% and 44.45%.

What is the book value of the machine at the end of the second year of​ operations?

Calculate the depreciation schedule for 2 years​ below:  ​(Round to the nearest​ dollar.)

Depreciation Schedule
		Year 1
Original Cost (Basis)	$
MACRS Rates (3-year)		0.3333
Depreciation Expense	$
Accumulated Depreciation	$
Ending Book Value	$

Answer 1

Under MACRS depreciation, depreciation expense is calculated on the original cost throughout.

Depreciation Schedule is as follows:-

Particulars	Year1	Year2
Original Cost	$305000	$305000
MACRS Rate(3-year)	0.3333	0.4445
Depreciation Expense	$101657	$135573
Accumulated Depreciation	$101657	$237230
Ending Book Value	$203343	$67770

*Accumulated Depreciation is a sum of years of depreciation

Ending Book value at the end of two year = Book value at end of first year - current year depreciation

= $203343 - $135573 = $67770