Problem 12-31 Tax losses and gains in capital budgeting [LO2] An asset was purch
ID: 2791983 • Letter: P
Question
Problem 12-31 Tax losses and gains in capital budgeting [LO2]
An asset was purchased three years ago for $175,000. It falls into the five-year category for MACRS depreciation. The firm is in a 30 percent tax bracket. Use Table 12–
(A) Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $20,560. (Round "Percentage depreciation" to 3 decimal places. Input all amounts as positive values. Omit the "$" sign in your response.)
Tax loss on the sale: ___?___
Tax Benefit: ___?___
(B) Compute the gain and related tax on the sale if the asset is sold now for $67,060. (Round "Percentage depreciation" to 3 decimal places. Input all amounts as positive values. Omit the "$" sign in your response.)
Taxable Gain: ___?___
Tax Obligation: ___?___
(A) Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $20,560. (Round "Percentage depreciation" to 3 decimal places. Input all amounts as positive values. Omit the "$" sign in your response.)
Tax loss on the sale: ___?___
Tax Benefit: ___?___
(B) Compute the gain and related tax on the sale if the asset is sold now for $67,060. (Round "Percentage depreciation" to 3 decimal places. Input all amounts as positive values. Omit the "$" sign in your response.)
Taxable Gain: ___?___
Tax Obligation: ___?___
Explanation / Answer
Year 5-Year Depn Balance 1 20% 35,000 1,40,000 2 32% 56,000 84,000 3 19.20% 33,600 50,400 4 11.52% 20,160 30,240 5 11.52% 20,160 10,080 6 5.76% 10,080 - Book Value 50,400 Sales Value 20,560 Tax loss on Sale 29,840 Tax Benefit at 30% 8,952 Book Value 50,400 Sales Value 67,060 Taxable Gain 16,660 Tax obligation at 30% 4,998