Question

# In year​ 0, an electrical appliance company purchased an industrial robot costing​ \$350,000. The robot is...

In year​ 0, an electrical appliance company purchased an industrial robot costing​ \$350,000. The robot is to be used for welding​ operations, classified as​ seven-year recovery​ property and has been depreciated by the MACRS method. If the robot is to be sold after five​ years, compute the amounts of gains​ (losses) for the following two salvage values​ (assume that both capital gains and ordinary incomes are taxed at​ 21%):

​(a)​ \$20,000

​(b)​ \$99,000

(a) If the robot is to be sold after five years and its salvage value is​ \$20,000, the amount of gains​ (losses) is________ ​(Round to the nearest​ dollar.)

Gains tax​ (loss credit) is_________(Round to the nearest​ dollar.)

(b) If the robot is to be sold after five years and its salvage value is​ \$99,000, the amount of gains​ (losses) is________ ​(Round to the nearest​ dollar.)

Gains tax​ (loss credit) is_________(Round to the nearest​ dollar.)

First we want to find the allowed depreciation cost for the robot given manufacturing cost as \$350000.00 with 7 year MACRS

The below is the forrmula for allowed depreciation expenses

Allowed depreciation=BV(x)MACRSd

BV=book value of the asset

MACRS=depreciation expense of the asset

d=no.of years of depreciation

Allowed depreciation=\$350000(x)[0.1429+0.244+0.1749+0.1249+0.0893/2]

=350000(x)*0.73225

=256305.00

Book value=\$350000-\$256305.00=\$93695

a)If sold at \$20000

Losses=\$20000-BV

=\$20000-\$93695

=\$73695

Next want to calculate the loss credit

Loss credit=losses*i

Where(i)=21/100=0.21

=\$73695*(0.21)

=\$15475.9

=\$15476

Next want to calculate the net loss

Net loss=losses+loss credit

=\$73695+\$15476

=\$89171

b)If sold at \$99000

Gain=\$99000-BV

=\$99000-\$93695

=\$5305

Gain tax =gain*(i)

=\$5305*(0.21)

=\$1114.05

=\$1114

Net gain =gain-gain tax

=\$5305-\$1114

=\$4191