Federal Express bought material handling equipment for its hub operations that cost $180,000. Using the
MACRS, what is the depreciation expense in year 3 (using a five-year class)?
A. $43,560
B. $34,560
C. $15,360
D. $40,000
Answer: B??
what is the MACRS equation?
34560
To calculate the depreciation expense using the Modified Accelerated Cost Recovery System (MACRS), you need to follow the steps below:
Step 1: Determine the property class.
In this case, the material handling equipment falls into the five-year class.
Step 2: Determine the depreciation method and percentages.
For five-year property, the MACRS depreciation percentages are as follows:
Year 1: 20%
Year 2: 32%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%
Step 3: Calculate the yearly depreciation expense.
To calculate the depreciation expense for year 3, you multiply the cost of the equipment by the depreciation percentage for year 3.
Depreciation expense for year 3 = Cost of equipment x Year 3 depreciation percentage
= $180,000 x 19.20%
= $180,000 x 0.192
= $34,560
Therefore, the correct answer is option B: $34,560.