A general contractor purchases a new excavator for $85,000. Using the MACRS 5-year depreciation schedule with a first-year rate of 20%, what is the depreciation expense for the first year?
Correct Answer
B) $17,000
Using MACRS 5-year depreciation at 20% for the first year: $85,000 × 0.20 = $17,000. This is the standard depreciation method for construction equipment.
Why This Is the Correct Answer
Option B is correct because MACRS 5-year depreciation for construction equipment uses a 20% rate in the first year. The calculation is straightforward: $85,000 (cost basis) × 0.20 (first-year rate) = $17,000. This follows the standard MACRS depreciation method that contractors must use for tax purposes when depreciating construction equipment.
Why the Other Options Are Wrong
Option A: $14,167
This amount ($14,167) would result from using straight-line depreciation over 6 years ($85,000 ÷ 6), which is not the correct MACRS method for construction equipment.
Option C: $21,250
This amount ($21,250) would result from using a 25% rate ($85,000 × 0.25), which is not the correct first-year MACRS rate for 5-year property.
Option D: $28,333
This amount ($28,333) would result from using straight-line depreciation over 3 years ($85,000 ÷ 3), which is neither MACRS nor the correct recovery period for construction equipment.
Memory Technique
Remember 'MACRS 5-year = 20% first year' - think '5 years, 1/5 = 20%' as a quick mental check for the first-year rate.
Reference Hint
Look up 'MACRS Depreciation Tables' or 'Equipment Depreciation' in the tax code reference section, specifically the 5-year property depreciation schedule.
More Business & Finance Questions
A contractor's license expires on March 31st. If they submit a renewal application on April 15th, what additional requirement must be met under Florida regulations?
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
In Florida, what is the minimum workers' compensation insurance coverage required for construction companies with employees?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
People Also Study
Previous Question
A general contractor has accounts receivable of $85,000 that are 30-60 days old and $45,000 that are over 90 days old. What percentage of the total accounts receivable ($200,000) is considered high risk for collection?
Next Question
A contractor is bidding on a project with an estimated material cost of $150,000. If the historical material cost escalation rate is 3% annually and the project will start in 6 months, what should be the adjusted material cost estimate?