The Wise Co. purchased a new truck two years ago for $56,000. The company uses M
ID: 2751711 • Letter: T
Question
The Wise Co. purchased a new truck two years ago for $56,000. The company uses MACRS depreciation for accounting purposes. The truck is classified as 5-year property, which has depreciation allowances of 20%, 32%, and 19.20% for the first three years, respectively. The company is in the 30% marginal tax bracket. Today the company received an offer of $32,000 for the truck. What will be the net cash flow from the sale if the company decides to sell the truck today?
a) $24,615
b) $28,663
c) $26,108
d) $30,464
e) $32,710
Explanation / Answer
Book Value of Truck today = $56,000 - ($56,000*20%) - ($56,000*32%)
= $56,000 - $11,200 - $17,920
= $26,880
Sale Price = $32,000
Gain on Sale of Truck = $32,000 - $26,880 = $5,120
Tax on Gain on Sale = $5,120 * 30% = $1,536
Net Cash Flow from Sale = Sale Price - Tax Paid on Gain on Sale
= $32,000 - $1,536
= $30,464 (Option-d)
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