The firm paid taxes of 40 on capital gains asset

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Unformatted text preview: nd Y. Asset X was purchased for $2,000 and will be sold today for $2,250. Asset Y was purchased for $30,000 and will be sold today for $35,000. The firm is subject to a 40% tax rate on capital gains. a. Calculate the amount of capital gain, if any, realized on each of the assets. b. Calculate the tax on the sale of each asset. LG6 1–11 Capital gains taxes The following table contains purchase and sale prices for the nondepreciable capital assets of a major corporation. The firm paid taxes of 40% on capital gains. Asset Purchase price Sale price A $ 3,000 $ 3,400 B 12,000 12,000 C 62,000 80,000 D 41,000 45,000 E 16,500 18,000 a. Determine the amount of capital gain realized on each of the five assets. b. Calculate the amount of tax paid on each of the assets. 38 PART 1 Introduction to Managerial Finance CHAPTER 1 CASE Assessing the Goal of Sports Products, Inc. L oren Seguara and Dale Johnson both work for Sports Products, Inc., a major producer of boating equipment and accessories. Loren works as a clerical assistant in the Accounting Department, and Dale works as a packager in the Shipping Department. During their lunch break one day, they began talking about the company. Dale complained that he had always worked hard trying not to waste packing materials and efficiently and cost-effectively performing his job. In spite of his efforts and those of his co-workers in the department, the firm’s stock price had declined nearly $2 per share over the past 9 months. Loren indicated that she shared Dale’s frustration, particularly because the firm’s profits had been rising. Neither could understand why the firm’s stock price was falling as profits rose. Loren indicated that she had seen documents describing the firm’s profitsharing plan under which all managers were partially compensated on the basis of the firm’s profits. She suggested that maybe it was profit that was important to management, because it directly affected their pay. Dale said, “That doesn’t make sense, because th...
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This document was uploaded on 01/19/2014.

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