A machine was sold in December 20x3 for $23,000. It was purchased in January 20x1 for $34,000, and depreciation of $31,000 was recorded from the date of purchase through the date of disposal. Assuming a 30% income tax rate, the after-tax cash inflow at the time of sale is:
Multiple Choice
$24,100.
$27,100.
$22,100.
$6,900
The after-tax cash inflow at the time of sale can be calculated by taking the selling price and subtracting the accumulated depreciation and any taxes owed.
Selling price: $23,000
Accumulated depreciation: $31,000
Tax rate: 30%
Tax owed: $23,000 - $31,000 = -$8,000 (a negative value because the accumulated depreciation exceeds the selling price)
Tax deduction: $8,000 * 30% = $2,400 (the tax owed is deducted from the income before taxes are calculated)
After-tax cash inflow: $23,000 - $31,000 + $2,400 = -$5,600
The correct answer is not provided among the multiple-choice options.
To calculate the after-tax cash inflow at the time of sale, we need to consider the gain or loss on the sale and the income tax rate.
The gain or loss on the sale can be calculated by subtracting the purchase price from the selling price, and then subtracting the recorded depreciation:
Selling price = $23,000
Purchase price = $34,000
Depreciation = $31,000
Gain or loss = Selling price - (Purchase price - Depreciation)
= $23,000 - ($34,000 - $31,000)
= $23,000 - $3,000
= $20,000
Since the selling price is less than the purchase price, there is a loss of $20,000.
To calculate the after-tax cash inflow, we need to subtract the income tax on the loss from the loss itself. The income tax rate is given as 30%.
Income tax = Loss * Income tax rate
= $20,000 * 0.30
= $6,000
After-tax cash inflow = Loss - Income tax
= $20,000 - $6,000
= $14,000
Therefore, the correct answer is $14,000.