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The Fischoeder's purchased a commercial freezer 6 years ago for $92,000. The freezer is being depreciated...

The Fischoeder's purchased a commercial freezer 6 years ago for $92,000. The freezer is being depreciated over its estimated 10-year life using the straight line method to a salvage value of zero. The company is planning to replace the freezer with a more energy efficient one that will cost $111,000 installed. If the old freezer can be sold for $58,000, what is the tax liability? Assume a marginal tax rate of 21 percent.


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Expert Solution

Depreciation under straight line method = (Purchase price-Salvage value)/useful life
Depreciation per year of the old freezer = $92000/10 years
                  = $9200 per year
Written down value of the freezer after 6 years = $92000 - ($9200*6)
           = $92000-$55200
           = $36800
Sale price = $58000
Therefore,
Tax liability = ($58000-$36800) * 21%
                        = $21200 * 21%
                        = $4452

jeff jeffy answered 1 year ago
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