A cement mixer was purchased tow years ago for $120,000 and can be sold for $125,000 today. The mixer has been depreciated using the MACRS 5 year recovery period and the firm pays 40% taxes on both ordinary and capital gain.
a) compute recaptured depreciation and capital gain (loss), if any.
b) Find the firm's tax liability
Since this property is MACRS 5 year property, it is depreciated using the 200% declining balance method with zero salvage value.
Annual depreciation = 200% x (120,000 / 5) = 200% x 24,000 = $48,000 / year
Therefore, after 2 years, the total depreciation taken ...
This solution shows how to compute the recaptured depreciation, the capital gain (or loss), and the given firms tax liability in the given accounting problem.