Question

If anyone can help me with this it would be greatly appreciated.

Book value and taxes on the sale of assets Troy Industries purchased a new machine 4 years ago for $76,000. It is being depreciated under MACRS under a 5 year

recovery period using the schedule (Below). Assume 40% ordinary capital gains tax rates.

"Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes"              
   Percentage by recovery year*          

3 years 5 years 7 years 10 years
1   33% 20% 14% 10%
2   45% 32% 25% 18%
3   15% 19%   18% 14%
4   7% 12% 12% 12%
5   12% 9% 9%
6     5% 9% 8%
7     9% 7%
8   4% 6%
9   6%
10   6%
11   4%
Totals   100%   100%   100%   100%
              

A) What is the book value of the machine?

B) Calculate the firms tax liability if it sold the machine for each of the following amounts. $91,200, $53,200, $12,920, and $9,000.

Sale Price $91,200

Capital Gain?

Tax on Capital Gain?

Tax on Recovery?

Total Tax?

Answer 1

	Troy Industries purchased
	Machine 4 Years ago with Price $76000 Depreciated 5 Year MACRS
	Recovery Type	3 Year	5 Year
	1		20%
	2		32%
	3		19%
	4		12%
	5		12%
	5		5%
			100%

	Book Value of Asset calculation
Year	Opening Balance ($)(a)	Depreciation rate(b)	Depreciated Value$(a*b)	Accumulated Depreciation	Closing Book Value ($)
1	76,000	20%	15,200	15,200	60,800
2	60,800	32%	24,320	39,520	36,480
3	36,480	19.00%	14,440	53,960	22,040
4	22,040	12.00%	9,120	63,080	12,920
5	12,920	12.00%	9,120	72,200	3,800
6	3,800	5.00%	3,800	76,000	-

Original Purchase price $76000	76000
Depreciation accumulated - 4 yrs$	63,080	( as derived above)
Book value $	12,920

Sale Price$	Tax Liability$	Tax Liability$
91200	("91200-12920)*40%	31,312
53200	("53200-12920)*40%	16,112
12920	(12920-12920)*40%	Zero
9000	( Sale Value is less than Book Value	Zero