Edward\'s Manufactured Homes purchased machinery 2 years ago for $319,000. These
ID: 2652931 • Letter: E
Question
Edward's Manufactured Homes purchased 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%Explanation / Answer
- Depreciation on the machine so far = 319,000 x (0.20+0.32) = $165,880
- Book value of machine = 319,000 - 165,880 = $153,120
- Tax on sale = (140,000 - 153,120) x (1 - 0.35) = $8,528 Tax Savings
- After tax salvage value = 140,000 + 8,528 = $148,528
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