Name Question 4 [20 points). Consider a lathe that your company purchased for $2
ID: 2478946 • Letter: N
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Name Question 4 [20 points). Consider a lathe that your company purchased for $27,000. The lathe has a useful life of 8 years although it follows a 7 year MACRS depreciation schedule. The lathe will have a $7,000 salvage value at the end of its useful life. For each of the depreciation methods listed below, determine the depreciation expense and book value of the asset in year 3, when the asset is sold. 19 points] (a) MACRS Straight Line 1.5 Declining BalanceM Compute resulting bu then switchi 10 The do d for an as age value (b) What are the net proceeds from the sale of this MACRS asset? Assume that ordinary and capital hat is the ars, ass ice at th gains are taxed at a rate of 34%. [11 points] witchin ed, whe ute the schedExplanation / Answer
Straight line depreciation Cost-salvage value/no. of years 27000-7000/8 2500 SLM Year Deprecition expense $ 1 2500 2 2500 3 2500 D3 Ans Total 7500 Beginning Book Value 27000 Less: Acc. Depreciation 7500 Book value at B3 19500 B3 Ans 1.5 Declining method=1.5*Straight Line depreciation rate* book value at the beginning of the year Straight Line depreciation rate 100/8 12.5 Year Beg. Book value Depreciation expense1.5*12.5%*Beg BV Ending Book value 1 27000 5062.5 21937.5 2 21937.5 4113.3 17824.2 3 17824.2 3342.0 14482.2 D3 Ans Total 12518 Beginning Book Value 27000 Less: Acc. Depreciation 12518 Book value at end of year 3 14482 B3 Ans Ans 2 MACRS Year Dep. Rate Depreciation expense on $27000 lathe 1 14.29% 3858.3 2 24.49% 6612.3 3 17.49% 4722.3 Depreciation for 3 years 15192.9 Book value at the end of three year 27000-15193 11807 Net proceeds Sales- Cost and expenses related to sale Sales price Less: Book Value 11807 Gain on sale lathe Less: Capital gain tax @ 34% This is not mentioned in the question what is the sale price Please enter the sale privce an you will get the answer
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