Question

Book value and taxes on sale of assets - Troy Industries purchased a new machine 2 ​years ago for $82,000. It is being depreciated under MACRS with a​ 5-year recovery period using the schedule

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes

           
Percentage by recovery year*          
Recovery year    3 years    5 years    7 years    10 years
1 33% 20% 14% 10%
2    45%   32% 25%    18%
3    15% 19% 18% 14%
4       7% 12% 12% 12%
5   12% 9%    9%
6     5% 9% 8%
7 9% 7%
8 4% 6%
9    6%
10 6%
11 4%
Totals 100% 100%   100% 100%

*These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax​ purposes, be sure to apply the actual unrounded percentages or directly apply​ double-declining balance​ (200%) depreciation using the​ half-year convention
              

Assume 40% ordinary and capital gains tax rates.

A. What is the book value of the​ machine?

b. Calculate the​ firm's tax liability if it sold the machine for each of the following​ amounts: $98,400​, $57,400​ , $39,360 and $27,600.

Answer 1