Pre-Fab purchased some equipment two years ago for $287,600. These assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576, for Years 1 to 6, respectively. The company is currently replacing this equipment so the old equipment is being sold for $150,000. What is the aftertax salvage value from this sale if the tax rate is 21 percent and no bonus depreciation is claimed?

Question

Quizplus · Accepted Answer

To calculate the after-tax salvage value, we first need to determine the book value of the equipment at the time of sale. Over two years, using the MACRS rates, the depreciation would be:Year 1: $287,600 * 0.2 = $57,520Year 2: $287,600 * 0.32 = $92,032Total depreciation = $57,520 + $92,032 = $149,552Book value = Original cost - Total depreciation = $287,600 - $149,552 = $138,048The sale price is $150,000, so the gain on sale is $150,000 - $138,048 = $11,952.Tax on the gain = $11,952 * 21% = $2,509.92After-tax salvage value = Sale price - Tax on gain = $150,000 - $2,509.92 = $147,490.08

Pre-Fab Purchased Some Equipment Two Years Ago for $287,600