FINANCIAL ACCOUNTING
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- i need the answer quicklyarrow_forwardNorth Ltd. purchased a building in 20X5 for $1,200,000. Straight-line depreciation was used, with a useful life of 40 years and a residual value of $200,000. A full year of depreciation was charged in 20X5. In 2008, the company decided to switch depreciation methods to declining balance, using a rate of 10%. The tax rate is 30%. Required: 1. Assume this is a change in estimate, and calculate 20X8 depreciation expense. Depreciation expense $112,500 2. Assume this is a change in policy, and calculate 20X8 depreciation expense and the cumulative effect of the change on 20X8 opening retained earnings. Depreciation expense $ 240,000arrow_forwardFreedom Corporation acquired a fixed asset for $140,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 6% and an income tax rate of 40%. (Use Exhibit 12.4, Appendix C, TABLE 1 and Appendix C, TABLE 2.) Required: 1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years'-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a…arrow_forward
- Shannon Polymers uses straight-line depreciation for financial reporting purposes for equipment costing $840,000 and with an expected useful life of four years and no residual value. Assume that, for tax purposes, the deduction is 40%, 30%, 20%, and 10% in those years. Pretax accounting income the first year the equipment was used was $960,000, which includes interest revenue of $28,000 from municipal governmental bonds. Other than the two described, there are no differences between accounting income and taxable income. The enacted tax rate is 25%. Prepare the journal entry to record income taxes. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. View transaction list Journal entry worksheet 1 Record the income tax expense. Note: Enter debits before credits. Transaction General Journal Debit Credit 1 Income tax expense Deferred tax liability Income tax payablearrow_forwardShannon Polymers uses straight-line depreciation for financial reporting purposes for equipment costing $780,000 and with an expected useful life of four years and no residual value. Assume that, for tax purposes, the deduction is 40%, 30%, 20%, and 10% in those years. Pretax accounting income the first year the equipment was used was $880,000, which includes interest revenue of $25,000 from municipal governmental bonds. Other than the two described, there are no differences between accounting income and taxable income. The enacted tax rate is 25%. Prepare the journal entry to record income taxes.arrow_forwardKenartha Oil recently paid $477,900 for equipment that will last five years and have a residual value of $110,000. By using the machine in its operations for five years, the company expects to earn $176,000 annually, after deducting all expenses except depreciation. Complete the schedule below assuming each of (a) straight-line depreciation and (b) double-declining-balance depreciation. (Do not round intermediate calculations. Enter loss amounts with a minus sign.) (a) Straight-Line Depreciation: Profit before depreciation Depreciation expenses Profit (loss) (b) Double-Declining-Balance Depreciation: Profit before depreciation Depreciation expenses Profit (loss) Year 1 Year 1 Year 2 Year 2 Year 3 Year 3 Year 4 Year 4 Year 5 Year 5 5-Year Totals 5-Year Totalsarrow_forward
- A hydraulic crane service company had sales revenue of $2,250,000 from operations during tax-year 1. The following table provides other financial information relating to the tax year: Labor expenses Materials costs Depreciation expenses $550,000 $385,000 $132,500 Interest expenses Rental expenses Proceeds from sale of old equipment with a $23,000 book value of $20,000 $22,200 $45,000arrow_forwardQuantum Electronic Services paid P = $40,000 for its networked computer system. Both tax and book depreciation accounts are maintained. The annual tax depreciation rate is based on the previous year’s book value (BV), while the book depreciation rate is based on the original first cost (P). Use the rates listed to plot annual depreciation and book values for each method. Develop the graphs using hand calculations or a spreadsheet, as directed by your instructor.arrow_forwardYou are evaluating two different devices. Equipment A costs $215,000 and is used for a period of three years, with a pre-tax operating cost of $32,000 per year. Equipment B costs $355,000 and is used for six years, with a pre-tax operating cost of $42,000 per year. Both units were depreciated to book value of 0 over the life of the unit using the linear old method of depreciation, assuming a residual value of $20,000. If your tax rate is 35%, the discount rate is 9%. Calculate the average cost of the two machines for the year. Which machine do you prefer?Why?arrow_forward
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