A manufacturer of aerospace products purchased three flexible assembly cells for $470,000 each. Delivery and insurance...

A manufacturer of aerospace products purchased three flexible assembly cells for $470,000 each. Delivery and insurance charges were $30,000? and installation of the cells cost another $53,000.

a. Determine the cost basis of the three cells.

b. What is the class life of the? cells?

c. What is the MACRS depreciation in year seven??

d. If the cells are sold to another company for $100,000 each at the end of year six?, how much is the recaptured? depreciation?

Expert Solution

(a)	Cost Basis of an assets includes all the expenses that is necessary to make the machine put to use.
	So in this case Cost basis of the assets includes its greight cost and installation cost.

	Purchase Cost	$1,410,000	(470000 x 3)
	Delivery and insurance	$30,000
	Installation	$53,000
	Cost Basis	$1,493,000

(b)	From Table of depreciation, the class life is 10 years.

(c )	Since GDS recovery is 7 years, 7 year macrs would be used.
		A	B	C = A x B	(D = C1+C2+…C8)	E = B - D
	Year	Rates	Cost Basis	Depreciation	Accumulated Depreciation	Book Value
	1	14.29%	$1,493,000	$ 213,349.70	$ 213,349.70	$ 1,279,650.30
	2	24.49%	$1,493,000	$ 365,635.70	$ 578,985.40	$ 914,014.60
	3	17.49%	$1,493,000	$ 261,125.70	$ 840,111.10	$ 652,888.90
	4	12.49%	$1,493,000	$ 186,475.70	$ 1,026,586.80	$ 466,413.20
	5	8.93%	$1,493,000	$ 133,324.90	$ 1,159,911.70	$ 333,088.30
	6	8.92%	$1,493,000	$ 133,175.60	$ 1,293,087.30	$ 199,912.70
	7	8.93%	$1,493,000	$ 133,324.90	$ 1,426,412.20	$ 66,587.80
	8	4.46%	$1,493,000	$ 66,587.80	$ 1,493,000.00	$ -

	Depreciation Expense for year 7 is $133,324.9

(d)	Book Value after year 6 is $199,912.70 ( See above table)

	Sale value year 6	$ 300,000.00	(100000 x 3)
	Less: Book Value	$ 199,912.70
	Depreciation recapture	$ 100,087.30

ekkarill92 answered 2 years ago

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