A delivery truck is purchased for $38,000, has a salvage value of $6,000 and is depreciated using MACRS. What is the first-year depreciation expense? (Points: 5)
$4,578.80
$5,430.20
$7,600.00
$15,200.00
To calculate the first-year depreciation expense using MACRS, we need to determine the applicable MACRS depreciation rate for the delivery truck. MACRS stands for Modified Accelerated Cost Recovery System, which is a depreciation method used for tax purposes in the United States.
MACRS has a 5-year recovery period for most vehicles, including delivery trucks. In the first year, MACRS depreciation is calculated using the half-year convention, which means that half of the full-year depreciation rate is applied.
The MACRS depreciation rates for a 5-year recovery period are as follows:
Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6 and later: 5.76%
To calculate the first-year depreciation expense, we multiply the purchase cost of the delivery truck minus the salvage value by the applicable depreciation rate.
First-year depreciation expense = (Purchase cost - Salvage value) × Depreciation rate
In this case, the purchase cost is $38,000 and the salvage value is $6,000. Let's calculate the depreciation expense:
First-year depreciation expense = ($38,000 - $6,000) × 20.00%
First-year depreciation expense = $32,000 × 20.00%
First-year depreciation expense = $32,000 × 0.20
First-year depreciation expense = $6,400
Therefore, the first-year depreciation expense for the delivery truck is $6,400.
None of the provided answer choices match the correct answer.