Suppose your corporation purchased a giant steam turbine for its production line at $250,000 in year 0. This type of big machines needs a special installment which costs $9,000. In addition, the labor work costs around 7,000. The steam engine was classified as a seven-year MACRS class property. Your corporation which has a taxable income of $ 11,000,000 is considering selling the machine for $90,000 at the end of year 4. The amount of tax paid on the gain (or loss) is computed as the end of year 4 as: (choose the closest answer)
a) +$ 5,473 b) -$ 5,473 c) -$ 3,310 d) +$ 4,357 e) -$7,831
Answed D
Company long term capital gain tax rate is 20%
Book value ate the end of 4th year
Totak asset value =266000
Based on wdv
| Year | Beginning Book Value | Dep. % | Dep. Amount | Total Dep. Amount | Ending Book Value |
| 1. | $266,000 | 28.57% | $76,000 | $76,000 | $190,000 |
| 2. | $190,000 | 28.57% | $54,286 | $130,286 | $135,714 |
| 3. | $135,714 | 28.57% | $38,775 | $169,061 | $96,939 |
| 4. | $96,939 | 28.57% | $27,697 | $196,758 | $69,242 |
| 5. | $69,242 | 28.57% | $19,783 | $216,541 | $49,459 |
| 6. | $49,459 | 28.57% | $14,131 | $230,672 | $35,328 |
| 7. | $35,328 |
Book value at the end of 4th year =69242
Consideratiom received = 90000
Gain=90000-69242
=20758
Tax=20758*20%
4151
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