Background:

2. The IRS, unlike financial accounting, seeks to provide standardized formulas rather than providing users with subjective judgement. Therefore, instead of 5 years, MACRS depreciates over 6 years, with the first year representing half of the 40 percent under DDB (i.e. 20 percent). The idea is to prevent taxpayers from gaming the system and buying equipment on the last day of the year.

Required:

Prepare a table showing 6-year MACRS depreciation for years 1 through 3 based on the formula provided. Please prepare in Excel using formulas only. If you do not use formulas you will get half credit. Complete the yellow cells with formulas based on the blue cells. Complete the pink cells used formulas based on the yellow and pink cells.

DDB over 5 years (not tax) Enter annual depreciation percentage 20.0% End of year basis 80.0% year 1 year 2 year 3 year 4 year 5 Total 40.00% 24.00% 14.40% 8.64% 12.96% 100.00% End of year basis 60.00% 36.00% 21.60% 12.96% 0.00% MACRS 5 year year 1 Half of DDB Year 1 year 2 DDB average years 1,2 year 3 DDB average years 2,3 year 4 year 5 Year 6 Total To be completed later To be completed later To be completed later To be completed later