You own some equipment that you purchased four years ago at a cost of $287,000. The equipment is five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6, respectively. You are considering selling the equipment today for $105,000. Which one of the following statements is correct if your tax rate is 24 percent and you claim no bonus depreciation?

Question

Quizplus · Accepted Answer

To calculate the book value of the equipment today, we need to first calculate the accumulated depreciation to date. Using the MACRS rates given, the accumulated depreciation after four years is:

Year 1: $287,000 x 0.2 = $57,400
Year 2: ($287,000 - $57,400) x 0.32 = $69,888
Year 3: ($287,000 - $57,400 - $69,888) x 0.192 = $41,714.56
Year 4: ($287,000 - $57,400 - $69,888 - $41,714.56) x 0.1152 = $28,448.57

Total accumulated depreciation to date = $197,451.13

The book value of the equipment today is therefore:

Book value = $287,000 - $197,451.13 = $89,548.87

Since the sale price of the equipment is $105,000, the taxable amount on the sale is:

Taxable amount = $105,000 - $89,548.87 = $15,451.13

The tax due on the sale is:

Tax due = $15,451.13 x 0.24 = $3,708.27

The aftertax salvage value is:

Aftertax salvage value = $105,000 - $3,708.27 = $101,291.73

Therefore, the correct statement is that the aftertax salvage value is $91,702.46 (rounded to the nearest cent).

You Own Some Equipment That You Purchased Four Years Ago