Tax payable or tax credit, Taxation

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Tax Payable or Tax Credit

Stuart's Guitars, which has a company tax rate of 30%, is planning to sell one of its old lathes. The machine, purchased 5 years ago for $50,000, had an expected life of 15 years and an expected salvage value of zero. Assume that Stuart use straight line depreciation.

a) What amount of depreciation is being taken each year?

b) What has been the tax credit associated with this depreciation each year?

c) Stuart's Guitars have been offered $40,000 for the lathe. What is the tax payable or the tax credit associated with this sale?

d) If, instead the old lathe cost $4,000 to dispose of, what is the tax payable or the tax credit associated with this disposal?

e) If the sale price is $25,000 what is the tax payable or the tax credit associated with this sale?


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