Book value and taxes on sale of assetsTroy 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

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. Assume

21%

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:

$96,000;

$56,000;

$23,200;

and

$16,200.

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Part 1

a. The remaining book value is

$2320023200.

(Round to the nearest dollar.)

Part 2

b. Calculate the firm's tax liability for each case:(Round to the nearest dollar.)

	Sale	Capital		Tax on		Depreciation		Tax on		Total
	Price	Gain		Capital Gain		Recovery		Recovery		Tax
$	96,000	$		$		$		$		$

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Data table

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in order to copy the contents of the data table below into a spreadsheet.)

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	10 years
1	33%	20%	14%	10%
2	45%	32%	25%	18%
3	15%	19%	18%	14%
4	7%	12%	12%	12%
5		12%	9%	9%
6		5%	9%	8%
7			9%	7%
8			4%	6%
9				6%
10				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.

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