MNET 414: CHAPTER 11 HOMEWORK

11-4.

(a) Straight line depreciation per year = (12,000-600)/4 = 2850.

Thus the 4 year depreciation schedule is:

 

Year

S.L. Depreciation

1

2850

2

2850

3

2850

4

2850

 

(b) SOYD for 4 years = 4+3+2+1 = 10

Depreciation in year 1 = 4/10*(12000-600) = 4560

Depreciation in year 2 = 3/10*(12000-600) = 3420

Depreciation in year 3 = 2/10*(12000-600) = 2280

Depreciation in year 4 = 1/10*(12000-600) = 1140

 

(c) DDB depreciation = 2/4*last B.V.

Year 1:             B.V = 12000

Depreciation = (2/4)* 12000 = 6000

 

Year 2:             year 2 BV = Year 1 BV – year 1depreciation = 12000-6000 = 6000

Depreciation year 2 = (2/4)*6000 = 3000.

 

Year 3:             year 3 BV = Year 2 BV – year 2 depreciation = 6000-3000 = 3000

Depreciation year 3 = (2/4)*3000 = 1500.

 

Year 4:             year 4 BV = Year 3 BV – year 3 depreciation = 3000-1500 = 1500

Depreciation year 2 = (2/4)*1500 = 750.

But some adjustment are needed in the year 4 depreciation, because after the depreciation BV should be same as the salvage value 600.  To maintain this requirement, the corrected the year 4 depreciation should be 900.

 

(d)     Special handling device falls under three year property class according to the Table 10-2 (Page 378) in the text book.

 

Using the percent values of the three year property class of the MACRS depreciation table 10-3 (Page 380 in text book) depreciation schedule is:

 

Year

% of first cost

Depreciation

1

33.33

12,000*.3333 = 3999.60

2

44.45

12,000*.4445 = 5334.00

3

14.81

12,000*.1481 = 1777.20

4

7.41

12,000*.0741 = 889.20

 

11-26.

According to the MACRS table for personal property 33.33%, 44.45% of depreciation is available for the first two years.  However, as the equipment will be sold in the 2nd year, the mid year convention applies and thus in the second year the depreciation = 44.45%/2 = 22.225%

 

Thus the total depreciation percent = 33.33%+22.225% = 55.555%

And total depreciation = 20000*.55555 = $11,111

 

Book value at the time of sale = 20,000 – 11,111 = 8889

 

As the equipment is sold at a higher price ($14,000) than the book value ($8,889), they will incur a depreciation recapture = 14000-8889 = 5,111.