The J. Harris Corporation is considering selling one of its old assembly machine
ID: 2719743 • Letter: T
Question
The J. Harris Corporation is considering selling one of its old assembly machines. The machine, purchased for $36,000 7 years ago, had an expected life of 12 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 $35,000. also assume harris has 32 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?
Explanation / Answer
Cost of the machine
$ 36,000
Expected life
12 years
Salvage Value
$ 0
Depreciation per year
$ 3,000
Sale value
$ 35,000
Book value of the machine = $ 36,000
Depreciation = $ 21,000 (-)
------------------
$ 15,000
Sale value = $ 35,000 (-)
---------------------
Profit = $ 20,000
Tax at 32% = $ 6,400
Book value of the machine = $ 36,000
Depreciation = $ 21,000 (-)
---------------
$ 15,000
Sale value = $ 25,000 (-)
---------------
Profit = $ 10,000
Tax at 32% = $ 3,200
Book value of the machine = $ 36,000
Depreciation = $ 21,000 (-)
---------------
$ 15,000
Sale value = $ 15,000 (-)
---------------
Profit = $ 0
Tax at 32% = $ 0
Book value of the machine = $ 36,000
Depreciation = $ 21,000 (-)
---------------
$ 15,000
Sale value = $ 12,000 (-)
---------------
Loss = ($ 3,000)
Tax at 32% = $ 0
Cost of the machine
$ 36,000
Expected life
12 years
Salvage Value
$ 0
Depreciation per year
$ 3,000
Sale value
$ 35,000
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