In July of 2009, Mr. Mann, a sole proprietor who performs excavating services, purchased and put to use for business a piece of heavy equipment for $36,500. This piece of equipment was depreciated using the MACRS 150% DB method of depreciation over the useful period of 7 years. No salvage value was approximated and applied to the appreciable basis of this equipment. Freight and installation charges for this equipment totaled $1500. Mr. Mann sold this piece of equipment for $31,500 in June of 2011.
For this task, define capital asset and discuss the purpose of depreciation of assets, and why depreciation directly affects valuation of the asset at disposal. Based on the information provided, determine the amount of capital gain or loss Mr. Mann incurred through this transaction. Be certain to detail your calculations for depreciating the equipment, and how this impacts the capital gain or loss associated with the disposal of this capital asset. Explain how any gain on this asset will impact the tax obligation for Mr. Mann as the proprietor.
This is what I calculated, but my instructor wants me recalculate depreciation using the MACRS tables?
Capital Gain or Loss:
Purchase Price $36,500
Freight & Instillation $1,500
Total cost $38,00
Depreciation 2009 38,000 * 1/7 * 150% * ½ = $4,071.73
Depreciation 2010 38,000 – 4,071.73 = 33,928.57 * 1/7 * 150% = $7,270.41
Depreciation 2011 38,000 – 4,071.73 – 7,270.41 = 26,657.86 * 1/7 * 150% * ½ = $2,856.23
Total Depreciation $14,198.07
Written Down Value = Total Cost of Asset – Total Depreciation
Written Down Value = 38,000 – 14.198.07 = $23,801.93
Capital Gain = 31,500 – 23,801.93 = $7,698.07