A company has decided to purchase a highly specialized computer system and needs to decide...
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Accounting
A company has decided to purchase a highly specialized computer system and needs to decide which depreciation method should use. Using the estimates provided for the computer system, answer the questions presented below.
| First cost = | $500,000 |
| Salvage value = | $50,000 |
| Estimated life (years) = | 5 |
| Market value (year 3) = | $200,000 |
| MARR = | 10% |
| What is the first-year depreciation using the straight-line method? | |
| What is the second-year depreciation using the double declining balance (DDB) method? | |
| What is the third-year depreciation using the MACRS method? | |
| Which method would you recommend the company to use to depreciate this asset? | |
| When the asset is sold after three years of use, determine if there is a depreciation recapture, a loss or a capital gain and of how much using the depreciation method recommended on the previous question. |
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