Bill Sharpe, owner of Sharper Knives Inc, is closing his business at t

Bill Sharpe, owner of Sharper Knives Inc, is closing his business at the end of the current fiscal year. His sole asset, the knife-sharpening machine, is three years old. A depreciation table for the asset is shown below.

Bill has agreed to sell the machine at the end of the year for $100,000. What is the impact on taxes from the sale of the machine? (Assume that Sharper Knives claimed a regular depreciation expense in the calculation of income taxes.) The tax rate is 35%. Round your answers to the nearest dollar.

Depreciation Table for Knife Sharpener
Year Basis Rate Depreciation Expense Accumulated Depreciation
1 $250,000 14.29% $35,725 $35,725
2 $250,000 24.49% $61,225 $96,950
3 $250,000 17.49% $43,725 $140,675
4 $250,000 12.49% $31,225 $171,900
5 $250,000 8.93% $22,325 $194,225

A) $3,264 tax refund from IRS
B) $3,264 additional taxes owing to IRS
C) $14,236 tax refund from IRS
D) $14,236 additional taxes owing to IRS
E) $38,264 tax refund from IRS

ANSWER

A