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.)

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Answer #1

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

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