Genetic Insights Co. purchases an asset for $17,136. This asset qualifies as a s

Question

Genetic Insights Co. purchases an asset for $17,136. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. Genetic Insights has a tax rate of 30%. The asset is sold at the end of six years for $4,517. Calculate gain or loss on disposal. Gain should be entered as a positive number. Loss should be entered as a negative number. Round the answer to two decimals.

Explanation / Answer

Solution.

Calculation of vaklue at the end of 6th year.

sold at the end of six years for    = $4,258.

Value at the end of 6th year         = 1,558.10

Gain on disposal of asset            = $2,699.9

Tax @30%                                     = 809.97

Gain after tax                                = $1,889.93

Year Basis % Depreciation Expense Accumulated Depreciation Ending Book value 1 $11,645 14.29% $1,664.07 $1,664.07 $9,980.93 2 $11,645 24.49% $2,851.86 $4,515.93 $7,129.07 3 $11,645 17.49% $2,036.71 $6,552.64 $5,092.36 4 $11,645 12.49% $1,454.46 $8,007.10 $3,637.90 5 $11,645 8.93% $1,039.90 $9,047.00 $2,598.00 6 $11,645 8.93% $1,039.90 $10,086.90 $1,558.10 $10,086.90 $39,873.64

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