PanAfrica Construction bought a small crane ten years ago for $140,000. The crane is being depreciated over a 15-year life to a salvage value of $20,000. PanAfrica pays taxes equal to 40 percent of ordinary income and capital gains. What is the tax liability (or saving)if the crane is sold now for $92,000?

Question

Quizplus · Accepted Answer

The crane's original cost is $140,000, with a salvage value of $20,000 and a 15-year life. The annual depreciation is ($140,000 - $20,000) / 15 = $8,000. After 10 years, the total depreciation is 10 * $8,000 = $80,000. The book value of the crane now is $140,000 - $80,000 = $60,000. Selling the crane for $92,000 results in a gain of $92,000 - $60,000 = $32,000. The tax on this gain at 40% is $32,000 * 0.4 = $12,800.

PanAfrica Construction Bought a Small Crane Ten Years Ago for $140,000