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Chapter 11: Q11-29Q (page 583)

What is a modified accelerated cost recovery system (MACRS)? Speculate as to why this system is now required for tax purposes.

Short Answer

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Answer

MACRS was adopted to permit a faster write-off of tangible assets to provide additional tax incentives and simplify depreciation.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of MACRS

MACRS system eliminates the requirement to calculate the estimated usable life of each asset. Under MACRS, choosing a depreciation method and a salvage value is optional. It applies to depreciable assets purchased after 1987.

02

Explaining MARCS required for tax purposes.

The recovery deduction for an asset is calculated by adding a statutory percentage to the property's historical cost. MACRS was created to provide a faster write-off of tangible assets, increasing benefits and simplifying depreciation, a faster write-off of tangible assets, agreements about estimated usable life, salvage value, and other issues.

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Most popular questions from this chapter

Tanaka Company has land that cost \(15,000,000. Its fair value on December 31, 2017, is \)20,000,000. Tanaka chooses the revaluation model to report its land. Explain how the land and its related valuation should be reported.

In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of \(8,113 million, end-of-the-year total assets of \)8,323 million, total sales of \(8,268 million, and net income of \)807 million. (a) Compute Campbell鈥檚 asset turnover. (b) Compute Campbell鈥檚 profit margin on sales. (c) Compute Campbell鈥檚 return on assets using (1) asset turnover and profit margin and (2) net income. (Round to two decimal places.)

Describe cost depletion and percentage depletion. Why is the percentage depletion method permitted?

(Depreciation鈥擟hange in Estimate) Machinery purchased for \(60,000 by Tom Brady Co. in 2013 was originally estimated to have a life of 8 years with a salvage value of \)4,000 at the end of that time. Depreciation has been entered for 5 years on this basis. In 2018, it is determined that the total estimated life should be 10 years with a salvage value of $4,500 at the end of that time. Assume straight-line depreciation.

Instructions

  1. Prepare the entry to correct the prior years鈥� depreciation, if necessary.
  2. Prepare the entry to record depreciation for 2018.

Use the information for Lockard Company given in BE11-2. (a) Compute 2017 depreciation expense using the double-declining-balance method. (b) Compute 2017 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2017.
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