Capital Foods Purchased an Oven 5 Years Ago for $45,000

question 34

Multiple Choice

Capital Foods purchased an oven 5 years ago for $45,000. The oven is being depreciated over its estimated 10-year life using the straight-line method to a salvage value of $5,000. Capital is planning to replace the oven with a more automated one that will cost $150,000 installed. If the old oven can be sold for $30,000, what is the tax liability? Assume a marginal tax rate of 40 percent.

• A) $900
• B) $2,000
• C) $127,000
• D) $25,000

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Definitions:

Bailment

A legal relationship in which physical possession of personal property is transferred from one party to another, with the obligation of safekeeping.

Rental Agreement

A legal contract in which one party agrees to rent property owned by another party for a specified time period, often detailing conditions such as payment and use.

Suspension System

A collection of components in vehicles that provides support, absorbs shocks, and helps maintain tire contact with the road.

Bailees

Individuals or entities that have been given temporary possession but not ownership of a property under a bailment agreement.