Talia’s Tutus bought a new sewing machine for $55,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line. Required: a. Find the depreciation charge each year. b. If the sewing machine is sold after 3 years for $25,000, what will be the after-tax proceeds on the sale if the firm’s tax bracket is 35%?

The Correct Answer is:  $8,528

A .  when The double-declining method is used twice the rate of the straight-line depreciation method. After that For Talia's tutu, the straight-line method will be 1/5 x 100 Then =0.2 x 100 Now =20% When The double-declining method will use that is 40% So that The depreciation schedule for three years will be as follows for 5 years is as follow Now the Opening balance Depreciation amount new Book value will be: Then $55,000   $22,000   $33,000 Then $33,000    $13,200    $19,800 Now $19,800    $7,920    $11, 880 When the $11,880    $4,752    $ 7,128 Now $7,128    $,2,851.2   $,4,276.8 B. When If the asset is sold after three years are: So that The Book value after 3 years = $11,880 Now The machine is sold for $25,000 Then the gross profits from the machine will be: After that = $25,000 - $11,880 Then =$13,120 the tax rate =35% =35/100 x $13,120 =0.35 x $13,120 =$4,592 Then the net realized = $13,120 - $4,592 After that the = $8,528

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