#1 A distribution center purchased an equipment for $100,000 and has depreciated the equipment using the MACRS depreciation schedule with as a 7-year property. The operating income in year 2 was $200,000 and the expenses were $87,000. If the company is in the 40% income tax bracket, determine the after-tax cash flow in year 2 The tax on depreciation recapture in year 2 is equal to __________________.

(A) $40,000 (B) $35,404 (C) $24,490 (D) None of these

#2 A small business sold an equipment for $100,000 after depreciating the equipment using SOYD depreciation method. The federal tax liability on this depreciation recapture is $34,000 if the company also had other taxable income of $150,000 in that year.

True or False ?

Please explain!! Thank you!!