Petzall Corp. incurred a $9,000 tax liability on the sale of an old machine. The before-tax gain or loss is equal to 10% of the sale price of the machine. If Petzall's income tax rate is 30%, what was the book value of the machine before it was sold?

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Quizplus · Accepted Answer

The before-tax gain or loss is 10% of the sale price, and the tax liability is $9,000, which is 30% of the before-tax gain. Therefore, the before-tax gain is $9,000 / 30% = $30,000. Since the gain is 10% of the sale price, the sale price is $30,000 / 10% = $300,000. If the gain is $30,000, then the book value before the sale was $300,000 - $30,000 = $270,000.