Book value and taxes on sale of assets Troy Industries purchased a new machine 3 year(s) ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule 3. Assume 40% ordinary and capital gains tax rates. a. What is the book value of the machine? b. Calculate the firm's tax liability if it sold the machine for each of the following amounts: $100,000; $56,000; $23,200; and $15,000. a. The remaining book value is $ 23,040). (Round to the nearest dollar.) b. Calculate the firm's tax liability for each case: (Round to the nearest dollar.) Sale Price 100,000 $ Capital Gain Tax on Capital Gain $ Depreciation Recovery $ Tax on Recovery Total Tax $ D $ $ (Round to the nearest dollar.) Total Sale Capital Price Gain 56,000 $D Tax on Capital Gain $ Depreciation Recovery $ Tax on Recovery $ Tax $ C (Round to the nearest dollar.) Tax on Capital Gain $ Sale Capital Price Gain $ 23,200 $ (Round to the nearest dollar.) Depreciation Recovery $ Tax on Recovery Total Tax $ $ Tax on Sale Price 15,000 $ Capital Gain Tax on Capital Gain Depreciation Recovery Total Tax Recovery Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 33% 20% 14% 45% 25% 15% 18% 12% 12% 32% 19% 10 years 10% 18% 14% 12% 9% 7% 12% Ovo AWN- 5% 8% 6% 6% 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. Book value and taxes on sale of assets Troy Industries purchased a new machine 3 year(s) ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the schedule 3. Assume 40% ordinary and capital gains tax rates. a. What is the book value of the machine? b. Calculate the firm's tax liability if it sold the machine for each of the following amounts: $100,000; $56,000; $23,200; and $15,000. a. The remaining book value is $ 23,040). (Round to the nearest dollar.) b. Calculate the firm's tax liability for each case: (Round to the nearest dollar.) Sale Price 100,000 $ Capital Gain Tax on Capital Gain $ Depreciation Recovery $ Tax on Recovery Total Tax $ D $ $ (Round to the nearest dollar.) Total Sale Capital Price Gain 56,000 $D Tax on Capital Gain $ Depreciation Recovery $ Tax on Recovery $ Tax $ C (Round to the nearest dollar.) Tax on Capital Gain $ Sale Capital Price Gain $ 23,200 $ (Round to the nearest dollar.) Depreciation Recovery $ Tax on Recovery Total Tax $ $ Tax on Sale Price 15,000 $ Capital Gain Tax on Capital Gain Depreciation Recovery Total Tax Recovery Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 33% 20% 14% 45% 25% 15% 18% 12% 12% 32% 19% 10 years 10% 18% 14% 12% 9% 7% 12% Ovo AWN- 5% 8% 6% 6% 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention
