4. (10 pts) A 5-year MACRS asset was bought for $100,000, and $1500 was paid for
ID: 2443954 • Letter: 4
Question
4. (10 pts) A 5-year MACRS asset was bought for $100,000, and $1500 was paid for delivery, $2500 for installation labor, and $5000 for site preparation. In addition, a membership in the APO (Awesome Professional Organization) was purchased at $2500, which would mean that future upgrades to the machine would be given at a discount. a) Determine the cost basis of this asset. b) Find the amount of tax depreciation to be deducted in year 3? c) Determine the book value after year 4? d) If the asset is to be sold at the end of year 5, what is the gains tax if the sale price is $14,500 and the tax rate is 21%?Explanation / Answer
(A)
Cost basis ($) = Asset price + Delivery cost + Installation charge + Site preparation cost
= 100,000 + 1,500 + 2,500 + 5,000
= 109,000
(B)
Tax depreciation, year 3 ($) = 109,000 x 19.2% = 20,928
(C)
Accumulated depreciation upto year 4 ($) = 109,000 x (20 + 32 + 19.2 + 11.52)% = 109,000 x 82.72%
= 90,164.8
Book value at year end, year 4 ($) = 109,000 - 90,164.8 = 18,835.2
(D)
Depreciation, year 5 ($) = 109,000 x 11.52% = 12,556.8
Accumulated depreciation upto year 5 ($) = 90,164.8 + 12,556.8 = 102,721.6
Book value at year end, year 5 ($) = 109,000 - 102,721.6 = 6,278.4
Capital gain ($) = Sale value - Book value = 14,500 - 6,278.4 = 8,221.6
Gains tax ($) = capital gains x 21% = 8,221.6 x 21% = 1,726.54
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