An asset was purchased three years ago for $110,000. It falls into the five-year

Question

An asset was purchased three years ago for $110,000. It falls into the five-year category for MACRS depreciation. The firm is in a 40 percent tax bracket. Use Table 12–12.

a. Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $14,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)

b. Compute the gain and related tax on the sale if the asset is sold now for $54,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)

Explanation / Answer

Year Depreciation Base % Depr Depreciation 1 $                          110,000.00 0.200 $    22,000.00 2 $                          110,000.00 0.320 $    35,200.00 3 $                          110,000.00 0.192 $    21,120.00 Total Depreciation till Date $    78,320.00 Book Value $    31,680.00 a. Book Value (BV) $    31,680.00 Sales Price (SP) $    14,060.00 Loss on Sale (BV - SP) $    17,620.00 Tax Benefit (.4* Loss) $      7,048.00 b. Book Value (BV) $    31,680.00 Sales Price (SP) $    54,060.00 Profit on Sale (SP-BV) $    22,380.00 Tax Obligation(.4*Profit) $      8,952.00

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.