3. (14 pts) Transco Corporation has a CNC lathe that cost $62,400. Shipping and

Question

3. (14 pts) Transco Corporation has a CNC lathe that cost $62,400. Shipping and site preparation cost $2,200 and installation cost $400. This equipment is a 7-year MACRS class. At the end of the 3rd year of service, the CNC lathe was traded in for a different lathe with a purchase price of $79,200, shipping and site preparation cost $2,400 and installation cost $400. The trade-in allowance was $20,000 and cash was paid for the balance. What is the cost basis of the new lathe for computing the amount of depreciation for income tax purposes?

Explanation / Answer

Answer: Cost basis=$62400+2200+400=$65000

Cost basis of new lathe=$79200+2400+400=$82000

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