Calculate gain or loss on disposal.

Business & Finance
Tutor: None Selected Time limit: 1 Day

Genetic Insights Co. purchases an asset for $17,324. 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 $3,996.

Calculate gain or loss on disposal.

Correct answer is 1,678.05, please explain. 

Oct 5th, 2015

Thank you for the opportunity to help you with your question!

Cost of the asset = $17,324

Depreciation for 1st year = Cost of the asset  X  (Rate/100)

                                         = 17,324   X   (14.29/100)

                                          = 2,475.60

Depreciation for 2nd year = Cost of the asset  X  (Rate/100)

                                         = 17,324   X   (24.49/100)

                                          = 4,242.65

Depreciation for 3rd year = Cost of the asset  X  (Rate/100)

                                         = 17,324   X   (17.49/100)

                                          = 3,029.97

Depreciation for 4th year = Cost of the asset  X  (Rate/100)

                                         = 17,324   X   (12.49/100)

                                          = 2,163.76

Depreciation for 5th year = Cost of the asset  X  (Rate/100)

                                         = 17,324   X   (8.93/100)

                                          = 1,547.03

Depreciation for 6th year = Cost of the asset  X  (Rate/100)

                                         = 17,324   X   (8.93/100)

                                          = 1,547.03

Therefore total depreciation for all 6 years = 2,475.60 + 4,242.65 +3,029.97 +2,163. 76 +1,547.03 +1,547.03

                                                                    = 15,006.04

Book value of the asset  at the end of 6th year =  Cost of the asset  - Total depreciation

                                                                           = 17,324  -  15,006.04

                                                                           =  2,317.96

Profit or loss on sale of the asset               =  Book value - Sales value

                                                                    = 2,317.96  -  3,996

                                               Profit            =  $1,678.04     (being sales is more than the book value)

Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 5th, 2015

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