An asset was purchased three years ago for $155,000. It falls into the five-year
ID: 342122 • Letter: A
Question
An asset was purchased three years ago for $155,000. It falls into the five-year category for MACRS depreciation. The firm is in a 30 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 $18,560. (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 $63,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)
Explanation / Answer
Total depreciation rates charged:20%+32%+19.2%= 71.2% [as per MACRS table]
Total depreciation: cost *total depreciation rate
= 155000*71.2%= 110360
Book value at time of sale : 155000-110360 = 44640
A)loss on sale =sale value -book value
= 18560-44640
= - 26080 loss [enter as 26080]
Tax benefit : Loss * long term capital gain tax rate
= -26080 *.15
= 3912
b)
Taxable gain : 63060- 44640
= 18420
Tax obligation : 18420 *.15= 2763
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