Question

11. George Washington Hospital new Chief Executive Officer wants to increase efficiency of GWH data processing operations. She decides to acquire a computer system that would reduce the hospital collection by five days among other benefits. The computer system cost $2,700,000 and spent $241,175 to renovate a building to accommodate the new equipment. The useful life of the computer system is estimated to be eight years and the computer residual value is $100,000.00. Using straight line depreciation method. Calculate GWH yearly depreciation on that equipment. What would be the book value after year 5? (10 points) 12. Refer to problem 11. GWH sold the computer for $130,000 after 8 years. The hospital corporate tax is 25% What was GWH capital gains? What is its tax liability on that sale? (10 points) od u

Answer 1

Answer 11:

The total cost would include the renovation cost of the building since it was specifically incurred for the computer system.

Total cost = 2,700,000 + 241,175 = $ 2,941,175

Residual value = $100,000.

Depreciable value = cost Less Residual value = 2,941,175 - 100,000 = 2,841,175

Depreciation per year based on straight line would be 2,841,175/8 = $ 355,147 (Approx)

Book value after 5 years would be 2,941,175 - (355,147 x 5) = $ 1,065,440.

Answer 12:

The capital gain for the asset would be on $130,000 (assuming it would be fully depreciated over the useful life as per tax books). In such a case capital gain would be 130,000 x 25% = $32,500.