question archive Sal Prepares his financial statements using straight line depreciation Sal Files His Tax Return using Macrs
Sal Prepares his financial statements using straight line depreciation Sal Files His Tax Return using Macrs
Subject:LawPrice:3.87 Bought7
Sal Prepares his financial statements using straight line depreciation Sal Files His Tax Return using Macrs.
Machine Depreciable Basis 96000
Life 5 years
Salvage value 0
Date Placed In service april 1, year 1
Date Sold Jan 1, year 4
Sales Price 32000
What is loss on Sale For financial statement purposes recorded on Jan1, year 4?
What is the gain on sale for tax purposes recorded on Jan 1, year 4?
What is sal's year 4 M-1 adjustment related to the sale?
What is the net Book value of the machine for tax purpose at dec 31,year 2?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer:
1) Loss on Sale from Financial Statement of Year 4 = 9,600
Step 1:
Calculation of Annual Depreciation = Depreciable Base of Machine / Useful Life
= 96,000 / 5
= 19,200
Step 2: Schedule of Depreciation
| Years | Period | Depreciation | Carrying Value of Machine at the end of year |
| 1 | 10 Months (March 1 - December 31) |
19,200 x 10/12 = 16,000 |
80,000 |
| 2 | full year ( Jan 1, to Dec 31) | 19,200 | 60,800 |
| 3 | full year ( Jan 1, to Dec 31) | 19,200 | 41,600 |
| 4 | No Period as Machine sold on Jan 1, Year 4 | 0 | 41,600 |
| 5 |
Step 2: Calculation of Profit/ loss from Sale of Machine
| Carrying Value of Machine as at Jan 1, y4 | 41,600 |
| Selling Price | 32,000 |
| Loss on Sale = 41,600 - 32,000 | 9,600 |
2) Gain on Sale for Tax purpose = 1,152
Schedule of Depreciation according to MACRS
| Years | MACRS RATES | Depreciation | Carrying Value |
| 1 | 20% | 96,000 x 20% x 10/12= 16,000 | 80,000 |
| 2 | 32% | 96,000 x 32% = 30,720 | 49,280 |
| 3 | 19.20% | 96,000 x 19.20% = 18,432 | 30,848 |
| 4 | 11.52% |
Step 2: Calculation of Gain on Sale for Tax purpose
| Carrying value of Machine as at Jan 1. Year 4 by MACRS | 30,848 |
| Selling Price | 32,000 |
| Gain on sale = 32,000 - 30,848 | 1,152 |
3) Sal's Year 4 , M1 adjustment related to sales = 10,752
Reconciliation of Income from GAAP and MACRS
| Particulars | Amount |
| Net Loss from sale of Machine as per Financial Statements | (9,600) |
| Net Income from Sale of Asset for Tax purpose | 1,152 |
| M1 Adjustment related to Sales | 10,752 |
4) Net Book Value of Machine as at December 31, Year 2 = 60,800
