An asset was purchased three years ago for $220,000. It falls into the five-year
ID: 2721034 • Letter: A
Question
An asset was purchased three years ago for $220,000. It falls into the five-year category for MACRS depreciation. The firm is in a 35 percent tax bracket. Use Table 12–12.
Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $25,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)
Compute the gain and related tax on the sale if the asset is sold now for $76,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)
An asset was purchased three years ago for $220,000. It falls into the five-year category for MACRS depreciation. The firm is in a 35 percent tax bracket. Use Table 12–12.
Explanation / Answer
let's determine the book value of the asset:
Purchase price = $220,000
Total depreciation to date =$156,640
Book value = $63,360
(a) $25,060 sales price
Book value = $63,360
Sales price = $25,060
Tax loss on the sale = $38,300
Tax loss on the sale = $38,300
Tax rate 35%
Tax benefit = $13,405 (38,300*35%)
(b) $76,060 sales price
Sales price = $76,060
Book value = $63,360
Taxable gain = 12,700
Tax rate 35%
Tax obligation = $4,445 (12,700*35%)
Year Depreciation base Percentage Depreciation Annual Depreciation 1 220,000 .200 44,000 2 220,000 .320 70,400 3 220,000 .192 42,240 Total depreciation to date 156,640Related Questions
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