Q31BP An asset was purchased three yea... [FREE SOLUTION]

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 4: Q31BP (page 415)

An asset was purchased three years ago for $120,000. It falls into the five-year category for MACRS depreciation. The firm is in a 35 percent tax bracket. Compute the following:
a. Tax loss on the sale and the related tax benefit if the asset is sold now for $15,060.
b. Gain and related tax on the sale if the asset is sold now for $56,060. (Refer to footnote 4 in the chapter.)

Expert verified

The tax loss on the sales is $19,500and the tax benefit will be $6,825. The gain on sale will be $21,500and the tax obligation will be $7,525

$\begin{array}{rcl} BookValue & = & PurchasePrice - TotalDepreciationtodate \\ = & 120, 000 - 85, 440 \\ = & $ 34, 560 \end{array}$

$\begin{array}{rcl} Taxlossonthesales & = & BookValue - SalesPrice \\ = & 34, 560 - 15, 060 \\ = & $ 19, 500 \end{array}$

$\begin{array}{rcl} TaxBenefit & = & Taxlossonthesales 脳 Taxrate \\ = & 19, 500 脳 35 % \\ = & $ 6, 825 \end{array}$

$\begin{array}{rcl} TaxableGain & = & SalesPrice - BookValue \\ = & 56, 060 - 34, 560 \\ = & $ 21, 500 \end{array}$

$\begin{array}{rcl} TaxObligations & = & Taxgainonthesales 脳 Taxrate \\ = & 21, 500 脳 35 % \\ = & $ 7, 525 \end{array}$

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