Refer to the facts in the preceding problem. Assume that Blue Corporation disposes of the manufacturing asset at the beginning of year 7 for $40,000. Compute the amount of gain or loss recognized for book and tax purposes. What is the book-tax difference in the year of disposition?
In preceding In April of the current year, Blue Corporation purchased an asset to be used in its manufacturing operations for $100,000. Blue's management expects the asset to ratably provide valuable services in the production process for eight years and have a salvage value of $12,000. The asset is a five-year asset for tax purposes. Blue has adopted the half-year convention for book purposes in the year of acquisition and disposition; Blue uses MACRS for tax purposes.