Genetic Insights Co. purchases an asset for $18,261. 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 $4,825.

Calculate tax paid on gain on disposal. Round the answer to two decimals.

Your Answer:

Book Value at the end of 6th year= $ 2443.32

Gain on Sale of Asset= $2381.68

Tax Paid= $714.54

Step-by-step explanation

a-

Purchase Price= $18,261

Depreciation of 6 year

Years Rate of Depreciation Depreciation

1 14.29% $2,609

2 24.49% $4,472.12

3 17.49% $3,193.85

4 12.49% $2,280.80

5 8.93% $1,630.71

6 8.93% $1,630.71

Total Depreciation $15,818

Book Value at the end of 6th year=Purchase Price- Total Depreciation

Book Value at the end of 6th year= $18,261-$15,817.68

Book Value at the end of 6th year= $ 2443.32

b-

Gain/loss on Sale of Asset

Gain/loss on Sale of Asset=Salvage Value - Sale Price

Gain/loss on Sale of Asset=4825-2443.32

Gain on Sale of Asset= $2381.68

c-

Tax Paid on Sale of Asset

Tax Paid=Gain on Sale of Asset * Tax Rate

Tax Paid = $2381.68*30%

Tax Paid= $714.54