Question

You own some equipment that you purchased four years ago at a cost of $287,000. The equipment is five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for years 1 to 6, respectively. You are considering selling the equipment today for $99,000. Which one of the following statements is correct if your tax rate is 35 percent?
A. The tax due on the sale is $17,357.76.
B. The book value today is $49,406.40.
C. The accumulated depreciation to date is $270,468.80.
D. The taxable amount on the sale is $49,593.60.
E. The aftertax salvage value is $81,707.76.

Answer 1

Answer:

E. The aftertax salvage value is $81,707.76.

Explanation:

The computation is shown below:

Accumulated depreciation is

= $287,000 × ( .2 + .32 + .192 + .1152)

= $237.406.40

Now the book value is

= Purchase value - accumulated depreciation

= $287,000 - $237,406.40

= $49,593.60

And, the selling value is $99,000

So after tax salvage value is

= Salvage value - (Salvage value - book value) × tax rate

= $99,000 - ($99,000 - $49,593.60) × 35%

= $81,707.76.