Four years ago, Sierra Instruments of Monterey, California, spent $200,000 for equipment for manufacturing standard gas flow calibrators. The equipment was depreciated by MACRS using a 3?year recovery period. For year 4, GI was $100,000, OE was $50,000, and Te was 40%. Develop hand and spreadsheet solutions for year 4 only that determine the CFAT if the asset was disposed of as follows (Neglect any tax effects caused by the sale.):
(a) Discarded with no salvage value at the end of year 4.
(b) Sold for $20,000 at the end of year 4.
(c) Sold for $20,000 at the end of year 4; however, SL depreciation was applied throughout the 3-year recovery period.
By hand: CFAT = GI – OE – P + S – (GI – OE –D)Te
(a) P & S = 0
D = 200,000(0.0741) = $14,820
CFAT = 100,000 – 50,000 – (100,000 – 50,000 – 14,820)(0.40)
= $35,928
(b) S = $20,000
D = 200,000(0.0741) = $14,820
CFAT = 100,000 – 50,000 + 20,000 - (100,000 – 50,000 – 14,820)(0.40)
= $55,928
(c) S = $20,000 D = 0
CFAT = 100,000 – 50,000 + 20,000 - (100,000 – 50,000)(0.40)
= $50,000
Spreadsheet:
MACRS d4 = 0.0741 SL d4 = 0
Same answers as above using Table 17-2 template
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