An asset was purchased three years ago for $165,000. It falls into the five-year

Question

An asset was purchased three years ago for $165,000. It falls into the five-year category for MACRS depreciation. The firm is in a 35 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 $19,560. (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 $65,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)

Tax loss on the sale Tax benefit Table 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 5-Year 3-Year MACRS MACRS MACRS MACRS MACRS MACRS 7-Year 10-Year 15-Year 20-Year 0.200 0.320 0.192 0.115 0.115 0.058 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.065 0.065 0.033 0.050 0.095 0.086 0.077 0.069 0.062 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.030 0.038 0.072 0.067 0.062 0.057 0.053 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.017 1.000 0.445 2 3 4 8 9 15.. 16 19 20.. 1.000 1.000 1.000 1.000 1.000

Explanation / Answer

a. $19,560 sales price

b) $65,060 Sales price

First determine the book value of the asset. Year Depreciation Base Depreciation percentage Annual depreciation 1 165000 0.2 33000 2 165000 0.32 52800 3 165000 0.192 31680 Total depreciation to date 117480 Purchase price 165000 Less- Total depreciation to date 117480 Book value 47520

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