A firm purchased and placed in service a new piece of semiconductor manufacturing equipment. The cost basis for the equipment is $100,000, and it will have a salvage value of $3,000 at end of year 7. The IRS has placed semiconductor manufacturing equipment in the 5-year recovery class. What is the depreciation charge in year 2, and what is the book value in year 2?

Book Value at the end of year 2 is $48,000

Explanation:

The depreciation rate table for a property under the 5-year recovery class is:

Year Depreciation charge

1 20

2 32

3 19.2

4 11.52

5 11.52

6 5.76

Thus, given the cost of equipment = $100,000

Depreciation charge in year 1 = 20% of $100,000

Depreciation charge in year 1 = $20,000

Depreciation charge is year 2 = 32% of $100,000

Depreciation charge is year 2 = $32,000

Book Value at the end of year 2 = $100,000 - $20,000 - $32,000

Book Value at the end of year 2 = $48,000