Genetic Insights Co. purchases an asset for $19,660. This asset qualifies as a s

Question

Genetic Insights Co. purchases an asset for $19,660. 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 $4,127. 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

ASSET Cost = $ 19660 depreciation at MARCS 7 years so

deperication at 14.29% book value at the end of year 1= 19,660(1-14.29%)=$ 16,850.59

24.49% 2=$ 16,850.59(1-24.49%)=$ 12,723.43

17.49% 3=$ 12,723.43(1-17.49)=$ 10498.10

12.49% 4= $ 10,498.10(1-12.49%)=$ 9186.89

8.93% 5= $ 9186.89(1-8.93%)=$ 8366.50

8.93% 6 = $ 8366.50(1-8.93%)= $ 7619.37

so the book value at the end of 6th year= $ 7619.37

asset sold for $ 4,127 at the end of 6 th year=$ 4,127

lose= book value - salvage value= $ 7619.37-$ 4127= -$3492.37   

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