FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
Publisher: MCG
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7. Several years ago, Pentair purchased equipment for $23,500,000. Pentair uses straight-line
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- sarrow_forwardOn April 1, 2024, Titan Corporation purchases office equipment for $50,000. For tax reporting, the company uses MACRS and classifies the equipment as 5-year personal property. In 2024, this type of equipment is eligible for 60% first-year bonus depreciation. For financial reporting, the company uses straight-line depreciation. Assume the equipment has no residual value.Required: Calculate annual depreciation for the five-year life of the equipment according to MACRS. The company uses the half-year convention for tax reporting purposes.Calculate annual depreciation for the five-year life of the equipment according to straight-line depreciation. The company uses partial-year depreciation based on the number of months the asset is in service for financial reporting purposes. In which year(s) is tax depreciation greater than financial reporting depreciation?arrow_forward5arrow_forward
- 14. After a hurricane on May 20, 2023, RSD Manufacturing's facility was destroyed. RSD's tax basis in the facility was $1,020,000. On December 5, 2023, RSD received $1.25 million from insurance. If RSD built a new facility for $1.35 million on July 3, 2024, calculate the recognized gain on this involuntary conversion and the new facility's initial tax basis.arrow_forwardOn January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2020, the book value of the equipment was $30 million and its tax basis was $20 million. At December 31, 2021, the book value of the equipment was $28 million and its tax basis was $12 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2021 was $50 million. Required: 1. Prepare the appropriate journal entry to record Ameen's 2021 income taxes. Assume an income tax rate of 25%. 2. What is Ameen's 2021 net income?arrow_forwardIn March 2022, Jones Company purchased a Mercedes for use in its business at a cost of $73,000. Required: Assuming no bonus depreciation or Section 179 deduction, calculate the allowable tax depreciation on this asset for 2022, 2023, and 2024. Use Table 7-1 and Table 7-2. Use the below table for annual depreciation deduction for year 2022 to 2025: 2022 2023 2024 2025 and subsequent years 2022 depreciation 2023 depreciation 2024 depreciation Amount $ 11,200 18,000 10,800 6,460arrow_forward
- Grove Media plans to acquire production equipment for $845,000 that will be depreciated for tax purposes as follows: year 1, $329,000; year 2, $189,000; and in each of years 3 through 5, $109,000 per year. A 10 percent discount rate is appropriate for this asset, and the company’s tax rate is 20 percent. Required: Compute the present value of the tax shield resulting from depreciation. 2. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($169,000 per year).arrow_forwardHh1.arrow_forwardKk120.arrow_forward
- Pearl Limited purchased an asset at a cost of $20,000 on March 1, 2023. The asset has a useful life of seven years and an estimated residual value of $2,200. For tax purposes, the asset belongs in CCA Class 8, with a rate of 20%. (a) Calculate the CCA for each year, 2023 to 2026, assuming Pearl's asset is eligible for the Accelerated Investment Incentive, and that this is the only asset in Class 8. 2023 2024 2025 2026 2024 2025 CCA 2026 $ TA (b) How would the calculation for each year from 2024 to 2026 change if the asset had been purchased in 2024? $ $ $ tA tA $ CCAarrow_forward6) A company is considering purchasing a new automated machine that is expected to generate an additional income of $125,000 annually. The equipment will have an initial cost of $187,500 and estimated annual operating and maintenance costs of $50,000. Its estimated salvage value at the end of its useful life of 4 years will be $37,500. The equipment is a MACRS-GDS 3-year property for calculating depreciation deductions. The effective tax rate is 35%. For this new machine, determine the after-tax cash flow for each year of operation. (Round off values to the nearest dollar) ΕΟΥ BTCF a) 0 1 2 3 4 MACRS-GDS Deduction Taxable Income Tax ATCF b) (8 points) If the after-tax MARR is 10% per year compounded annually, compute the PW of the after-tax cash flows. Based on this PW, would you recommend the purchase of this new equipment?arrow_forwardOriole Corporation purchased a machine on January 2, 2020, for $4300000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2020 $860000 2023 $494500 2021 1376000 2024 494500 2022 825600 2025 249400 Assuming an income tax rate of 20% for all years, the net deferred tax liability that should be reflected on Oriole's balance sheet at December 31, 2021 be $103200 $73100 $0 $6880arrow_forward
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