Question

Reversing Rapids Co. purchases an asset for $194,783. This asset qualifies as a five-year recovery asset under MACRS. The five-year expense percentages for years 1, 2, 3, and 4 are 20.00%, 32.00%, 19.20%, and 11.52% respectively. Reversing Rapids has a tax rate of 30%. The asset is sold at the end of four years for $12,855.

Calculate tax credit on disposal. (The answer should be entered as positive value). Round the answer to two decimals.

Answer 1

Depreciation Schedule
Year	Opening Balance	Depreciation Base	Depreciation %	Depreciation	Closing Balance
A	B	C	D	E = C*D	F = B-E
1	194783	194783	20%	38956.6	155826.4
2	155826.4	194783	32%	62330.56	93495.84
3	93495.84	194783	19.20%	37398.336	56097.504
4	56097.5	194783	11.52%	22439.0016	33658.5024
Tax Credit on Disposal = (Sale Value - Book Value) * Tax rate
		= ($12,855 - $33,658.50) * 30.00%
		= -$20,803.50 * 30%
		= -$6,241.05
Therefore, Tax credit on disposal is $6,241.05