Question

Genetic Insights Co. purchases an asset for $14,981. 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 $4,766.

Calculate book value of an asset. Round the answer to two decimals.

Answer 1

Purchase price of asset = $14,981.

Percentage of accumulated depreciation at the end of 6th year = 14.29% + 24.49% + 17.49% + 12.49% + 8.93% + 8.93% = 86.62%

Therefore, Percentage of book value = 100% - 86.62% = 13.38%

Therefore, book value = Price of asset * percentage of book value
= $14,981 * 13.38%
= $2,004.46

Therefore, the book value of asset is $2,004.46

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Important note: I came to notice that there is an error in the question. Depreciation for the 6th year is 8.92% and not 8.93%. So if I solve it with the official depreciation rate then the answer will be $2,005.96