A Corporation Is Selling an Existing Asset for $21,000

question 40

Multiple Choice

A corporation is selling an existing asset for $21,000. 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) $7,560 tax liability
• C) $4,400 tax liability
• D) $7,720 tax liability

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Definitions:

Acetabulum

The cup-shaped cavity at the base of the hip bone into which the ball-shaped head of the femur fits to form the hip joint.

Inferior Pubic Ramus

The lower branch of the pubic bone, which together with the superior ramus, forms a part of the pelvis.

Scapula

A flat, triangular bone located in the upper back, part of the shoulder girdle that provides attachment for several muscles.