An asset was purchased three years ago for $100,000. It falls into the five-year category for MACRS depreciation. The firm is in a 25 percent tax bracket. Use Table 12–12.
a. Compute the tax loss on the sale and the
related tax benefit if the asset is sold now for $13,060.
(Input all amounts as positive values. Do not round
intermediate calculations and round your answers to whole
dollars.)
b. Compute the gain and related tax on the sale if
the asset is sold now for $52,060. (Input all amounts as
positive values. Do not round intermediate calculations and round
your answers to whole dollars.)
Homework Answers
| Calculation of book value of asset at end of three years | |||
| Beginning book value | $100,000 | ||
| Less: Depreciation Year 1 | $20,000 | 100000*0.20 | |
| Book value at end of year 1 | $80,000 | ||
| Less: Depreciation Year 2 | $32,000 | 100000*0.32 | |
| Book value at end of year 2 | $48,000 | ||
| Less: Depreciation Year 3 | $19,200 | 100000*0.192 | |
| Book value at end of year 3 | $28,800 | ||
| Calculation of gain or loss on sale of asset | |||
| Sale proceeds | $13,060 | ||
| Less: Book value | $28,800 | ||
| Loss on sale of asset | $15,740 | 28800-13060 | |
| Tax benefit on loss on sale of asset | $3,935 | 15740*25% | |
| Thus, loss on sale is $15,740 and related tax benefit is $3,935 | |||
| Calculation of gain or loss on sale of asset if asset is sold for $52,060 | |||
| Sale proceeds | $52,060 | ||
| Less: Book value | $28,800 | ||
| Gain on sale of asset | $23,260 | 52060-28800 | |
| Tax on gain on sale of asset | $5,815 | 23260*25% | |
| Thus, gain on sale of asset is $23,260 and tax on gain is $5,815 | |||
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