An asset was purchased three years ago for $145,000. It falls into the five-year

Question

An asset was purchased three years ago for $145,000. It falls into the five-year category for MACRS depreciation. The firm is in a 30 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 $17,560. (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 $61,060. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)

Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $17,560. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to whole dollars.)

Explanation / Answer

a ) we have to first find the book value of the asset

Total depreciation till now according MACRS 5 schedule

= 20% + 32% +19.2%

=71.2%

Remaining Book Value = 1-71.2% = 28.8%

Book value = 28.8% * 145000 =41760

Now if machine is sold for 17650

Total loss = 17650- 41760=-24110

Tax benfit = 30% * 24110 =7233

Now if the machine is sold for

61060

Then the gain would be 61060-41760 =19300

Tax olbligation =30%* 19300= 5790

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