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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? The tax due on the sale is $17,357.76.
The book value today is $49,406.40.
The accumulated depreciation to date is $270,468.80.
The taxable amount on the sale is $49,593.60.
The aftertax salvage value is $81,707.76.

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beritop1089

Answer:

I checked the web and found a similar question with exact same choices but different tax rate(35%) which doesn't apply for this question. Therefore, there is no correct answer in the choices given. The correct solution is as follows;

Explanation:

Depreciation schedule using the MACRS rates;

Year     Depreciation                        Accumulated depreciation      

Yr1     0.2*287000 = 57,400             57,400

Yr2    0.32*287,000 = 91,840             57,400 + 91,840 = 149,240

Yr3     0.192* 287,000 = 55,104         55,104 + 149,240 = 204,344

Yr4   0.1152 * 287,000 = 33,062.40      33,062.40 + 204,344 = 237,406.40  

Therefore, book value today is $287,000 - $237,406.40 = $49,593.60

Aftertax salvage value = Salvage - (Salvage-Book value)*tax

= 105,000 - (105,000 - 49,593.60)*0.24

=105,000 - 13,297.536

= $91,702.46

Therefore, none of the choices is correct.

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