COST OF OLD EQUIPMENT = $ 125,000
EXPECTED SALVAGE VALUE = 15,000
DEPRECIATED VALUE OF ASSET= (125000-15000)=110K
DEPRECIATED YEARS = 5 YEARS
DEPRECIATION = 110 K/5 YEARS = 22 K PER YEAR
ASSET SOLD IN YEAR 3:
BOOK VALUE OF ASSET IN YEAR 3'
ORIGINAL COST OF ASSET - ACCUMULATED DEPRECIATION
125000- 66000 (22000*3 YEARS) = 59000
SALE VALUE OF ASSET =70000
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CAPITAL GAIN ON SALE OF ASSET =11000
TAX ON CAPITAL GAIN @ 30% =3300
NET CASH IN FLOW FROM SALES IS = CASH RECEIVED ON SALES - TAX PAID ON SALES
= 70000-3300 = 66700
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IS THIS ANSWER RIGHT?
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THANZEELABEGAM ABDULKADER
DUBAI
United Arab Emirates
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Original Message:
Sent: 02-20-2018 01:03 PM
From: Mohamed Atif Ebrahim
Subject: cma part 2 MCQ
Hello
can anybody help resolving the following MCQ
Hernandez Company placed equipment worth $125,000 in service three years ago. When the equipment was purchased, management estimated that it would have a useful life of five years and a salvage value of $15,000. However, management has decided to replace the equipment with updated technology. Thus, the old equipment is being sold for $70,000. Assume that Hernandez has an effective tax rate of 30%. What is the after-tax net cash flow effect of this sale?
$7,700
$14,000
$64,000
$66,700
Thanks in advance
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Mohamed Atif Ebrahim
Evnironmental Accounting
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