A manufacturer of aerospace products purchased four flexible assembly cells for $500,000 each.
Delivery and insurance charges were $38,000 and installation of the cells cost another $52,000.
Required:
a. Determine the cost basis of the four 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 $140,000 each at the end of year seven, how much is the recaptured depreciation?
The cost basis of the four cells is thousand.
(Round to nearest whole number)

Question

Answered

Answer :

BATOLISISGO BATOLISISGO · Answer 1

Answer:

a) $2,360,000

b) Class life of the cells = 10 years.

c) 210748

d) 24976

Explanation:

Cost of each flexible assembly cell = $500,000

Number of flexible assembly cells = 4

Delivery and insurance charge = $38,000

Installation charge = $52,000

a) Calculate the cost basis of the four cells

cost basis = 4 * ( 500,000 + 38,000 + 52,000 )

= $2,360,000

b) The class life of the cells = 10 years with GDS Recovery period = 7 years

c) Determine the MACRS depreciation in year seven ( 7 )

MACRS depreciation in year 7 = rate * cost

where rate = 0.0893 ( value gotten from table attached below )

MACRS depreciation = 0.0893 * 2360000 = 210748

d) Determine the recaptured depreciation

= New selling price * number of assembly cells * rate ( gotten from table )

= $140,000 * 4 * 0.0446 = 24976