Question

Edward's Manufactured Homes purchased some machinery 3 years ago for $319,000. These assets are classified as 5-year property for MACRS. The company is replacing this machinery today with newer machines that utilize the latest in technology. The old machines are being sold for $140,000 to a foreign firm. What is the aftertax salvage value from this sale if the tax rate is 35 percent

Answer 1

Answer:

$144,592  

Explanation:

The computation of the after tax salvage value is shown below;

We assume that after 2 years, 52% of the equipment cost would be written off so the remaining basis i.e.

= $319,000 × 48%

= $153,120

The tax loss is

= $153,120 - $140,000

= $13,120

ANd, the tax rate is 35%

So,  

= $13,120 × 0.35

= $4,592

Now the after tax salvage value is

= $140,000 + $4,592

= $144,592  

Answer 2

Based on the information given, the after sales tax will be $144,592

In this case, it should be noted that 52% of the equipment cost would be written off. Therefore, the remaining basis will be:

= $319000 × (100% - 52%)

= $319,000 × 48%

= $153,120

Therefore, the tax loss will be:

= $153,120 - $140,000

= $13,120

The tax rate is given as 35%, Thai will be:

= $13,120 × 0.35

= $4,592

Therefore, the after tax salvage value will be:

= $140,000 + $4,592

= $144,592  

In conclusion, the correct option is $144,592.

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