Problem 17.035: Calculate tax liability in yr2 An in-place machine with B= $155,
ID: 2568013 • Letter: P
Question
Problem 17.035: Calculate tax liability in yr2 An in-place machine with B= $155,000 was depreciated by using Modified Accelerated Cost Recovery System (MACRS) over a 3-year period. The machine was sold for $60,000 at the end of year 2 when the company decided to import the item that required the use of the machine. In year 2, gross income (GI)-$1 million and operating expenses (OE) = $500,000. Determine the tax liability in year 2 if Te-35%. tax liability in year The tax liability in year 2 is determined to be $ Reference links 174 Depreciation Recapture and Capital Gains (Losses)Explanation / Answer
Gross Income 1000000 Less: Expenses -500000 Net Operating Income 500000 Gain on sale of machine 23890 Profit before tax 523890 Incoem tax expense (35%) 183362 Net Income 340529 Book value at year 2 Cost 155000 Less: Depreciation for 2 years Year 1 (155000*33.33%) 50000 Year 2 (155000*44.45%) 68890 Total depreciation 118890 Book value at year 2 36110 Gain on sale of machine 23890 (60000-36110) Gain upto depreciation expenseis depreciation recapture so $23890 will be treated as ordinary income Tax liability 183362