Company purchases a new punch press at a cost of $265,000. Delivery and installation cost $46,000....

Company purchases a new punch press at a cost of $265,000. Delivery and installation cost $46,000. The machine has a useful life of 12-years, but will depreciate using MACRS over a seven year property class,

1. What is the cost basis of the machine

2. What will be the depreciation allowance each year over the seven years

3. If we sell the machine at the end of five years for $70,000, what will be the gain/loss tax assuming a 40% tax rate

4. What are the net-proceeds from the sale

Calculate and show all in Excel.

Solutions

Expert Solution

(1) cost basis = purchase cost+all the expenses incurred to bring machine into working condition

=$265,000+$46,000

=$311,000

(2) MACRS is a depreciation method which depreciates assets as per rate given in schedule.

7 year property class rates are:

3.Gain(Loss)= Sale value-Book value at the end of 5th year

$70,000-$69,384

=$616

tax = Gain*tax rate

=$616*40%

=$246.4

4.Net proceeds from the sale

=sale value-taxes

=$70,000-$246.4

=$69,753.6

ekkarill92 answered 8 months ago

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