A company that utilizes the MACRS system of depreciation but does not use bonus depreciation:
A) will have equal depreciation costs each year of an asset's life.
B) will have a greater depreciation tax shield in Year 2 than in Year 1.
C) can depreciate the cost of land.
D) will expense less than the entire cost of an asset.
E) will fully depreciate a MACRS five-year asset within 5 years.

Question

Quizplus · Accepted Answer

The Modified Accelerated Cost Recovery System (MACRS) allows for a greater depreciation expense in the earlier years of an asset's life, creating a larger tax shield in those years compared to straight-line depreciation. This means that under MACRS, the depreciation tax shield in Year 2 would indeed be greater than in Year 1, assuming the asset's value is depreciating over time.

A Company That Utilizes the MACRS System of Depreciation but Does