Question

P10-8 (similar to) Question Help O Depreciation expense. Richardses Tree Farm, Inc. has just purchased a new acrial tree trimmer for $95,000. Calculate the depreciation schedule using a seven-year life (for the properly class category of a single-purpose agricultural and horticultural structure from Table 10.3) for both straight-line depreciation and MACRS, B. Use the half-year convention for both methods. Compare the depreciation schedules before and after taxes using a 40% tax rate. What do you notice about the difference between these two methods? Using a seven-year life, straight-line depreciation, and the half-year conven i Data Table $ (Round to the nearest dollar.) MACRS Fixed Annual Expense Percentages by Recovery Class Click on this icon to download the data from this table Year 3-Year 33.33% 44.45% 14.81% 7.41% 5-Year 20.00% 32.00% 19,20% 11.52% 11.52% 5.76% 7-Year 14.29% 24.49% 17.49% 12.49% 8.93% 8.93% 8.93% 4.45% 10-Year 10.00% 18.00% 14.40% 11.52% 9.22% 7.37% 6.5596 6.55% 6.55% 6.55% 3.28% Print Done Enter your answer in the answer box and then click Check Answer

Answer 1

Ans :-

1. Straight Line Method :-

• Cost of the Asset is $95,000;
• useful life = 7 years; Salvage value = Nil
• Depreciation =
  Costof asset – sal vagevalue Usefullife
  =
  95000-0
     = $13,571 (Rounded off)
• We have to use Half year convention for calculating depreciation. Hence, depreciation of the first year shall be Half of the $13,571 and the remaining half portion shall be recovered in the year 8. For years 2 to 7, the depreciation shall be $13,571.

        Depreciation Schedule :-

Year	Depreciation
1	$6,786
2	$13,571
3	$13,572
4	$13,571
5	$13,572
6	$13,571
7	$13,572
8	$6,785
Total	$95,000

(Note :- actual depreciation amounts to be $13,571.4286 ; For better presentation, I have rounded off to $13,571 and $13,572 )

2. MACRS Method :-

• Under this method, The rate of depreciation shall be applied on the Cost of the asset for calculating the amount of depreciation.
• Depreciation Schedule :-

Year	Rate of Depreciation	Cost of Asset	Depreciation
1	14.29%	$95,000	$13,576
2	24.49%	$95,000	$23,266
3	17.49%	$95,000	$16,616
4	12.49%	$95,000	$11,866
5	8.93%	$95,000	$8,484
6	8.93%	$95,000	$8,484
7	8.93%	$95,000	$8,484
8	4.45%	$95,000	$4,228
Total			$95,000