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

---

Definitions:

Cephalothorax

The fused head and thorax found in certain arthropods, such as spiders and crustaceans, which houses both sensory and motor organs.

Cephalothorax

The fused head and thorax found in certain arthropods, such as spiders and crustaceans.

Pyothorax

Accumulation of pus in the pleural cavity caused by infection, which can lead to compromised lung function and requires medical intervention.

Metathorax

The third and last of the three segments in the thorax of an insect, carrying the second pair of wings and the second pair of legs.