An Asset Was Purchased Three Years Ago for $100,000 and Can

question 85

Essay

An asset was purchased three years ago for $100,000 and can be sold for $40,000 today. The asset has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gain.
(a) Compute recaptured depreciation and capital gain (loss), if any.
(b) Find the firm's tax liability.

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Definitions:

Sympathetic Nervous System

Part of the autonomic nervous system that activates the body's fight-or-flight response during stressful situations.

Stress Response

The body's way of reacting to a challenge or demand, often characterized by physical, mental, and emotional changes.

Parasympathetic Nervous System

One of the two subdivisions of the autonomic nervous system, responsible for conserving energy and promoting the "rest and digest" response in the body.

Hypothalamus

A brain structure that helps maintain various bodily functions, including eating and hunger.