The tax loss on the sale and the related tax benefit. Introduction: Tax loss: It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year. Tax benefit: It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer. MACRS depreciation method: MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

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Answer 1

Question

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

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Assume the following: . A firm acquires an asset for $120.000 with a 5 year useful life and no salvage . The asset will generate $50,000 of cash flow for all five years . The tax rate is 20% . The firm will depreciate the asset over four years on a straight-line (SL) basis for tax purposes and over five years on a SL basis for financial reporting purposes. Taxable income in year 1 is: $26.000 $20.000 © $4.000

Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company’s tax rate is 20 percent. Required: Compute the present value of the tax shield resulting from depreciation. 2. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).

Consider a profitable company with an asset that cost $3 million that is depreciated straight line to zero over. It’s 11 year depreciable tax life. The asset is to be used in a three year project at the end of the project. The asset can be sold for 362,000. If the relevant tax rate is 18%, what is the after tax cash flow from the sale of this asset (after tax salvage)?

Answer 2

Question

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

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Answer 3

Question

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

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Answer 4

Question

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

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Answer 5

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

Answer 6

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Answer 7

Chapter 12, Problem 31P

a.

Summary Introduction

To calculate: The tax loss on the sale and the related tax benefit.

Introduction:

Tax loss:

It is the loss incurred when the total deduction claimed in a financial year exceeds the total assessable income of the year.

Tax benefit:

It is the allowable deductions on the assessable income of the taxpayer, with an intent to reduce the tax liability and burden of the taxpayer.

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Answer 8

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

Answer 9

b.

Summary Introduction

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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Solution Summary: The author explains the calculation of the tax loss on the sale and the related tax benefit.

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To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

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Chapter 12 Solutions

Solution Summary: The author explains the calculation of the tax loss on the sale and the related tax benefit.

Concept explainers

Videos

To calculate: The gain and related tax on the sale of asset. Introduction: Tax liability: An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.

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Chapter 12 Solutions

To calculate: The gain and related tax on the sale of asset.

Introduction:

Tax liability:

An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.