The J. Harris Corporation is considering selling one of its old assembly machine

Question

The J. Harris Corporation is considering selling one of its old assembly machines. The machine, purchased for $30,000 five years ago, had an expected life of ten years and an expected salvage value of zero. Assume Harris uses simplified straight-line depreciation (depreciation of $3,000 per year) and could sell this old machine for S35,000. Also assume Harris has a 25 percent marginal tax rate. a. What would be the taxes associated with this sale? b. If the old machine were sold for $25,000, what would be the taxes associated with this sale? c. If the old machine were sold for $15,000, what would be the taxes associated with this sale? d. If the old machine were sold for $12,000, what would be the taxes associated with this sale? c. If the old machine were sold for S15,000, what would be the taxes associated with this sale? Selling p Profitloss from sale Taxes DATA Purchase Expected life Salvage value Depreciation Tax rate Years from when purchased 15000 S30,000 10 S0 S3,000 25% d. If the old machine were sold for $12,000, what would be the taxes associated with this sale? Selling p Profitloss from sale Taxes 12000 SOLUTION Accumulated depreciation Book value 1. Start Excel. Download and open the workbook named: Keown Martin Petty Problem 11-3 Start. Imp 2. In cell B15, calculate the accumulated depreciation. (1 point) Note: The output of the expression or funo 3. In cell B16, calculate the book value of the asset. (1 point) 4. In cell B21, calculate the profit/loss from the sale of the asset. (1 point) 5. In cell B22, calculate the taxes due from the sale of the asset. (1 point) Note: The output of the expressi 6. In cell B27, calculate the profit/loss from the sale of the asset. (1 point) 7. In cell B28, calculate the taxes due from the sale of the asset. (1 point) Note: The output of the expressi a. What would be the taxes associated with this sale? S35,000 Selling price Profitloss from sale Taxes b. If the old machine were sold for $25,000, what would be the taxes associated with this sale?8. In cell B33, calculate the profitloss from the sale of the asset. (1 point) 9. In cell B34, calculate the taxes due from the sale of the asset. (1 point) Note: The output of the expressi 10. In cell B39, calculate the profit/loss from the sale of the asset. (1 point) 11. In cell B40, calculate the taxes due from the sale of the asset. (1 point) Note: The output of the express $25,000 Selling price Profitloss from sale Taxes

Explanation / Answer

Purchase price of machine= $30000

Depreciation per year= $3000

Book value after 5 years= 30000- 3000*5 = $15,000

As per rules I will answer the first 4 sub parts of the question

a.Selling price= $35000

Profit from sale= 35000-15000 = 20000

Taxes= 20000*25% = $5000

b. Selling price= $25000

Profit from sale= 25000-15000 = 10000

Taxes= 10000*25% = $2500

c. Selling price= $15000

Profit from sale= 15000-15000 = 0

Taxes= 0

d. Selling price= $12000

Loss from sale= 15000-12000 = 3000

Tax saving = 3000*25% = $750

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