A firm is considering purchasing an asset that will cost $1 million. Other depreciable costs include $100,000 in installation costs. If the asset is classified in the 3-year class, what is the annual depreciation for each year for this asset using the fixed depreciation percentages given by MACRS? (The percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.)

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aquialaska aquialaska · Answer 1 · 2020-04-26T04:20:27+02:00

Answer:

The correct answer for year 1 is $366,630, for year 2 is $488,950, for year 3 is $162,910, and for year 4 is $81,510.

Explanation:

According to the scenario, the computation of the given data are as follows:

We can calculate the annual depreciation by using following formula:

Annual depreciation = Total cost × MACRS rate

Where, total cost = $1,000,000 + $100,000 = $1,100,000

By putting the value, we get

Annual Depreciation year 1

= $1,100,000 × 33.33%

= $366,630

Annual Depreciation year 2

= $1,100,000 × 44.45%

= $488,950

Annual Depreciation year 3

= $1,100,000 × 14.81%

= $162,910

Annual Depreciation year 4

= $1,100,000 × 7.41%

= $81,510