Edward\'s Manufactured Homes purchased some machinery 2 years ago for $319,000.
ID: 2628244 • Letter: E
Question
Edward's Manufactured Homes purchased some machinery 2 years ago for $319,000. These assets are classified as 5-year property for MACRS. The company is replacing this machinery today with newer machines that utilize the latest in technology. The old machines are being sold for $140,000 to a foreign firm for use in its production facility in South America. What is the aftertax salvage value from this sale if the tax rate is 35 percent?
MACRS 5 Year Property
Year Rate
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%
What steps would I use to solve this?
Explanation / Answer
Step1 : Calculation of Book Value at the time of sale of old Machine
Book Value of Old Machine at present = 319000 - 319000*(20%+32%)
Book Value of Old Machine at present = $ 153120
Step2 : Calculation of Tax on Profit/Loss on Sale of old machine
Sale Value of Old Machine = $ 140000
Loss on Sale of old Machine = Book Value of Old Machine at present - Sale Value of Old Machine
Loss on Sale of old Machine = 153120 - 140000
Loss on Sale of old Machine = 13120
Tax Benefit on loss = 13120*35%
Tax Benefit on loss = $ 4592
Step3 : Calculation of aftertax salvage value from this sale
Aftertax salvage value from this sale = 140000+4592
Aftertax salvage value from this sale = 144,592
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