Suppose Concrete Suppliers Inc. sells one of its $155,000 concrete trucks, with an original five-year economic...
Suppose Concrete Suppliers Inc. sells one of its $155,000 concrete trucks, with an original five-year economic life, at the end of year 3 after taking three years of straight-line depreciation. Concrete Suppliers has a 40 percent tax rate. If the truck is sold for its book value, there is no tax effect. If Concrete Suppliers sells the truck for more or less than its book value, there is a gain or loss that has a tax effect.
a. Show the effects on cash flow in Year 3 if the sales price is $80,000.
Show the effects on cash flow in Year 3 if the sales price is $80,000.
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b. Show the effects on cash flow in Year 3 if the sales price is $20,000.
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Homework Answers
ANSWER
| Cost of Truck | 155000 | ||
| Divide: Life | 5 | ||
| Annual depreciation | 31000 | ||
| Accumulated dep | 93000 | ||
| (31000*3) | |||
| Book value of Truck | 62000 | ||
| Req A: | |||
| Cash proceeds of truck | 80000 | ||
| Book value | 62000 | ||
| Gain n sale of truck | 18000 | ||
| Tax @ 40% | 7200 | ||
| Net cash effect of sale | 72800 | ||
| (80000-7200) | |||
| Req B: | |||
| Cash proceeds of truck | 20000 | ||
| Book value | 62000 | ||
| Loss on sale of Truck | 42000 | ||
| tax shield @40% | 16800 | ||
| Net cash effect of sale | 36800 | ||
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