A Firm Is Selling an Existing Asset for $5,000

question 51

Multiple Choice

A firm is selling an existing asset for $5,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five-year recovery period and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, the tax effect of this transaction is ________.

• A) $0 tax liability
• B) $1,320 tax liability
• C) $1,160 tax liability
• D) $2,000 tax benefit

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Definitions:

Guarantor

is an individual or entity that agrees to be responsible for another's debt or performance under a contract, if the original party fails to meet their obligations.

Principal Debtor

The main individual or entity obligated to repay a debt or loan in the terms of a financial agreement.

Principal Debtor

The main individual or entity legally obligated to repay a debt or loan in accordance with the terms of the agreement.

Guarantor

An individual or entity that agrees to be responsible for another's debt or performance under a contract if the original party fails to meet their obligations.