Asked by Cristian Coronado on May 17, 2024
Verified
PanAfrica Construction bought a small crane ten years ago for $140,000. The crane is being depreciated over a 15-year life to a salvage value of $20,000. PanAfrica pays taxes equal to 40 percent of ordinary income and capital gains. What is the tax liability (or saving) if the crane is sold now for $92,000?
A) $36,800
B) ($8,000)
C) $12,800
D) $56,000
Tax Liability
The amount of taxation that a business or individual owes to a taxing authority, typically calculated based on income or transactions.
Salvage Value
The estimated residual value of an asset at the end of its useful life, used in accounting for depreciation calculations.
- Understand how to calculate and interpret the tax effects of selling an asset.
Verified Answer
AM
Adzimah MahmudMay 20, 2024
Final Answer :
C
Explanation :
The crane's original cost is $140,000, with a salvage value of $20,000 and a 15-year life. The annual depreciation is ($140,000 - $20,000) / 15 = $8,000. After 10 years, the total depreciation is 10 * $8,000 = $80,000. The book value of the crane now is $140,000 - $80,000 = $60,000. Selling the crane for $92,000 results in a gain of $92,000 - $60,000 = $32,000. The tax on this gain at 40% is $32,000 * 0.4 = $12,800.
Learning Objectives
- Understand how to calculate and interpret the tax effects of selling an asset.
Related questions
On February 1 Brutus Company Purchased 1000 Shares (2% Ownership) ...
Hungh Company Had the Following Transactions Pertaining to Short-Term Investments ...
Pincher Company Purchased 50 Issac Company 12% 10-Year $1000 Bonds ...
Quagle Company Had the Following Transactions Pertaining to Debt Investments ...
On April 25 Davis Company Buys 4200 Shares of Carter ...