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    Bookkeeping: Recaptured Depreciation

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    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

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    Solution Preview

    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 ...

    Solution Summary

    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.