Question

g the company purchased an equipment at $55,275. Two years later, the equipment is sold for $24,120. The equipment is classified as five-year property for MACRS. The MACRS annual depreciation rates are 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%, for Years 1 to 6, respectively.What is the after tax salvage value of this sale at the year 2

Answer 1

Answer:

to determine the after tax salvage value I assumed a 21% corporate tax rate (no tax rate was given in the question):

after tax salvage value = salvage value - [(book value - market value) x tax rate] = -$2,412 - [($24,120 - $26,532) x 21%] = -$2,412 - (-$506.52) = $1,905.48

Explanation:

original purchase cost $55,275

depreciation year 1 = $55,275 x 0.2 = $11,055, book value $44,220

depreciation year 2 = $55,275 x 0.32 = $17,688, book value $26,532

equipment is sold at $24,120 resulting  in a net loss = $24,120 - $26,532 = -$2,412