An in-place machine with B = $120,000 was depreciated by MACRS over a 3-year period. The machine was sold for $60,000 at the end of year 2 when the company decided to import the item that required the use of the machine. In year 2, GI = $1.4 million and OE = $500,000. Determine the tax liability in year 2 if Te = 35%.

What will be an ideal response?


BV2 = 120,000 – 120,000(0.3333 + 0.4445) = $26,664

SP = $60,000; DR is present
DR = 60,000 – 26,664 = $33,336
D2 = 120,000(0.4445) = $53,340

TI2 = 1,400,000 – 500,000 – 53,340 + 33,336 = $879,996

Taxes2 = 879,996(0.35) = $307,999

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