Assume that today is December 31, 2015. Mike Mulligan Excavation Inc. has one Ca
ID: 2782452 • Letter: A
Question
Assume that today is December 31, 2015. Mike Mulligan Excavation Inc. has one Caterpillar 345DL Hydraulic Excavator. It was purchased at the beginning of 2014 for
$ 294,000. The excavator is classified as a10-year property. (MACRS depreciation rates are shown in the table
.)
Selected financial values for 2015 are shown in the table, below. Assume a corporate tax rate of 35 %. What is the tax on sale in 2015 if Mike sells the 345DL at the end of 2015 for
$ 151,000?
(Enter any tax benefit as a negative tax.)
Selected Financial Values 2015
Mike Mulligan Excavations Inc.
Sales
$ 2,469,000
Cost of Goods Sold
$ 1,032,000
S, G & A
$ 817,800
The tax (or tax benefit for an ordinary loss) on the sale is ?(Round to the nearest dollar.)
Explanation / Answer
As per MACRS , depriciation rate= 200/n= 200/10= 20%
depriciation for year 2014= 20%of 294000= $ 58800
Depriciation for the year 2015= 20% of (294000-58800)= $ 47040
Total accumulated depriciation = ( 58800+47040)= $105840
Book value at 31 st Dec, 2015=(294000-105840)= $ 188160
Sales value= 151000
Loss on sale= (151000-188160)= $ 37160
Tax saving or Tax sheild= 35% of 37160= $13006
Post tax salvage value= (151000+13006)= $164006