Homework Answers
In this case, the expected salvage value of equipment is $ 40000, and on that basis, depreciation will be calculated.
If assumed that depreciation is calculated under straight line method, then,
depreciation = (Original cost-Expected salvage value)/useful life of the asset
Therefore, Depreciation = ($600000-$40000)/8= $70000
Hence, depreciation of $70000 will be an expenditure over the useful life of the asset.
Hence, at the end of year 8, the book value of the equipment will be $ 40000.
However, if the equipment is sold for $ 50000, then there results in profit on sale of equipment to the extent of $ 10,000 ($50000-$40000)
Tax rate = 30%
Therefore, company will owe $ 3000 ($10000 x 30%) in taxes.
Hence, Option A is correct
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