Question

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed...

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows. Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $ 8,000 Year 2 9,600 12,800 Year 3 5,760 7,680 If Tara sells the machine after three years for $15,000, how much gain should she recognize? a. $3,480 b. $11,480 c. $6,360 d. $9,240 e. None of these choices are correct.

Homework Answers

Answer #1

Cost of machine

40000

Cost recovery allowed

Cost recovery allowable

Year 1

16000

8000

Year 2

9600

12800

Year 3

5760

7680

Residual value

15000

Cost

40000

Less: grater cost of recovery allowed or allowable

Year 1

16000

Year 2

12800

Year 3

7680

36480

Adjusted basis

3520

Recognize gain=

Residual value-adjusted basis

15000-3520

11480

Answer: (B) $11480

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