Question

Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. You sold the equipment today for $82,500. Which of these statements is correct if your tax rate is 23 percent and you ignore bonus depreciation?

Multiple Choice

• The tax due on the sale is $10,032.60.

• The book value today is $40,478.

• The book value today is $37,320.

• The taxable amount on the sale is $47,380.

• The tax refund from the sale is $13,219.40.

Answer 1

Answer is “the tax due on the sale is $10,032.60”

Cost of Equipment = $135,000

Depreciation, Year 1 = 20.00% * $135,000
Depreciation, Year 1 = $27,000

Depreciation, Year 2 = 32.00% * $135,000
Depreciation, Year 2 = $43,200

Depreciation, Year 3 = 19.20% * $135,000
Depreciation, Year 3 = $25,920

Book Value of Equipment = Cost of Equipment - Depreciation, Year 1 - Depreciation, Year 2 - Depreciation, Year 3
Book Value of Equipment = $135,000 - $27,000 - $43,200 - $25,920
Book Value of Equipment = $38,880

Taxable Amount = Salvage Value of Equipment - Book Value of Equipment
Taxable Amount = $82,500 - $38,880
Taxable Amount = $43,620

Tax Due = Taxable Amount * Tax Rate
Tax Due = $43,620 * 23%
Tax Due = $10,032.60