Reversing Rapids Co. purchases an asset for $110,991. This asset qualifies as a
ID: 2651736 • Letter: R
Question
Reversing Rapids Co. purchases an asset for $110,991. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of year 4 for $11,561. Correct answer = 13,846.47
Calculate after-tax cash flow at disposal. Round answer to two decimals.
Reversing Rapids Co. purchases an asset for $181,024. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of four years for $10,843. Correct answer = 6131.38
Calculate tax credit on disposal. Round the answer to two decimals.
Explanation / Answer
Reversing Rapids Co. purchases an asset for $110,991. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of year 4 for $11,561. Correct answer = 13,846.47
Solution-
The depreciation schedule for the $110,991 machine is as follows….
Year 1: $110,991× 0.2000 = $22,198.8
Year 2: $110,991× 0.3200 =$35,517.12
Year 3: $110,991× 0.1920 = $21,310.27
Year 4: $110,991× 0.1152 = $12,786.17
Accumulated Depreciation = $22,198.8+ $35,517.12+ $21,310.27 + $12,786.17 = $91,812.36
Book Value of machine = $110,991- $91,812.36= $19,178.64
Loss on disposal is $11,561- $19,178.64 = $7,617.64
Tax on Loss = Loss on disposal × Tax rate = $7,617.64× 0.30 = -$2,285.47
After-Tax Cash Flow at disposal = $11,561 – (-$2,285.29) = $13,846.47
Reversing Rapids Co. purchases an asset for $181,024. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of four years for $10,843
Solution-
The depreciation schedule for the $181,024 machine is as follows….
Year 1: $181,024 × 0.2000 = $36,204.80
Year 2: $181,024 × 0.3200 =$57,927.68
Year 3: $181,024 × 0.1920 = $34,756.61
Year 4: $181,024 × 0.1152 = $20,853.96
Accumulated Depreciation = $36,204.80 + $57,927.68 + $34,756.61 + $20,853.96 = $149,743.05
Book Value of machine = $181,024 - $149,743.05= $31,280.95
Loss on disposal is $10,843 - $31,280 =($20,437.95)
Tax on Loss = Loss on disposal × Tax rate = ($20,437.95) × 0.30 = ($6,131.38)
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