Question
A company has decided to purchase a highly specialized computer system and needs to decide which depreciation method should use. Using the estimates provided for
A company has decided to purchase a highly specialized computer system and needs to decide which depreciation method should use. Using the estimates provided for the computer system, answer the questions presented below.
First cost = | $500,000 |
Salvage value = | $50,000 |
Estimated life (years) = | 5 |
Market value (year 3) = | $200,000 |
MARR = | 10% |
What is the first-year depreciation using the straight-line method? | |
What is the second-year depreciation using the double declining balance (DDB) method? | |
What is the third-year depreciation using the MACRS method? | |
Which method would you recommend the company to use to depreciate this asset? | |
When the asset is sold after three years of use, determine if there is a depreciation recapture, a loss or a capital gain and of how much using the depreciation method recommended on the previous question. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started