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.):

Question

(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.

Answer 1

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