Question

Suppose Concrete Suppliers Inc. sells one of its $155,000 concrete trucks, with an original five-year economic...

Suppose Concrete Suppliers Inc. sells one of its $155,000 concrete trucks, with an original five-year economic life, at the end of year 3 after taking three years of straight-line depreciation. Concrete Suppliers has a 40 percent tax rate. If the truck is sold for its book value, there is no tax effect. If Concrete Suppliers sells the truck for more or less than its book value, there is a gain or loss that has a tax effect.

a. Show the effects on cash flow in Year 3 if the sales price is $80,000.

b. Show the effects on cash flow in Year 3 if the sales price is $20,000

Complete this question by entering your answers in the tabs below.

Required A

Required B

Show the effects on cash flow in Year 3 if the sales price is $80,000.
Cash proceeds of sale
Book value
Net cash effect of sale
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Homework Answers

Answer #1
Cost of Truck 155000
Divide: Life 5
Annual depreciation 31000
Accumulated dep 93000
(31000*3)
Book value of Truck 62000
Req A:
Cash proceeds of truck 80000
Book value 62000
Gain n sale of truck 18000
Tax @ 40% 7200
Net cash effect of sale 72800
(80000-7200)
Req B:
Cash proceeds of truck 20000
Book value 62000
Loss on sale of Truck 42000
tax shield @40% 16800
Net cash effect of sale 36800
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