Question

Big Dog Florists (BDF) just purchased a new delivery truck for $29,000, a light truck. The book value at the end of the year 4 is $5,011.20

a. Big Dog Florists (BDF) sold its delivery truck after three years (Prob. 1). Using a 30% tax rate, what is the after-tax salvage value for the truck if BDF sells the truck for $15,000?

b. Big Dog Florists (BDF) sold its delivery truck after three years (Prob. 1). Using a 30% tax rate, what is the after-tax salvage value for the truck if BDF sells the truck for $10,000?

c. Big Dog Florists (BDF) sold its delivery truck after three years (Prob. 1). Using a 30% tax rate, what is the after-tax salvage value for the truck if BDF sells the truck for $5,000?

Answer 1

Solution :

a.Statement showing calculation of After Tax salvage value for the truck if BDF sells

the truck for $ 15,000 :

Sl.No.	Particulars	Amount
1.	Sale value of the Truck	$ 15,000.00
2.	Less : Book value of the Truck	- $ 5,011.20
3.	Profit on sale of the Truck = (1) – (2)	$ 9,988.80
4.	Tax Rate	30 %
5.	Tax payable on profit on sale of the Truck = ( $ 9,988.80 * 0.30 )	$ 2,996.64
6.	After Tax salvage value = Sale value of Truck - Tax payable on profit on sale of Truck = $ 15,000 - $ 2,996.64 = $ 12,003.36 = (1) - (5 )	$ 12,003.36

Thus the After tax salvage value for the truck if BDF sells the truck for $ 15,000 is = $ 12,003.36

b.Statement showing calculation of After Tax salvage value for the truck if BDF sells

the truck for $ 10,000 :

Sl.No.	Particulars	Amount
1.	Sale value of the Truck	$ 10,000.00
2.	Less : Book value of the Truck	- $ 5,011.20
3.	Profit on sale of the Truck = (1) – (2)	$ 4,988.80
4.	Tax Rate	30 %
5.	Tax payable on profit on sale of the Truck = ( $ 4,988.80 * 0.30 )	$ 1,496.64
6.	After Tax salvage value = Sale value of Truck - Tax payable on profit on sale of Truck = $ 10,000 - $ 1,496.64 = $ 8,503.36 = (1) - (5 )	$ 8,503.36

Thus the After tax salvage value for the truck if BDF sells the truck for $ 10,000 is = $ 8,503.36

c.Statement showing calculation of After Tax salvage value for the truck if BDF sells

the truck for $ 5,000 :

Sl.No.	Particulars	Amount
1.	Sale value of the Truck	$ 5,000.00
2.	Less : Book value of the Truck	- $ 5,011.20
3.	Loss on sale of Truck = (1) – (2)	-$ 11.20
4.	Tax Rate	30 %
5.	Tax savings on loss of sale of Truck = ( $ 11.20 * 0.30 )	$ 3.36
6.	After Tax salvage value = Sale value of Truck + Tax savings on loss of sale of Truck = $ 5,000 + $ 3.36 = (1) + (5 )	$ 5,003.36

Thus the After tax salvage value for the truck if BDF sells the truck for $ 5,000 is = $ 5,003.36