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Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $450,000. Of this sum, $55,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the company will need to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could
How will the tax authority’s decision affect the after-tax cost of the kiln? The tax rate is 25%, and the
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- During the last five months of the year, Dwana opens a new Internet telecommunications business called Dwan-Com. Dwan-Com bills 50,000 of revenues, but receives only 40,000 cash. Dwan-Com incurs 3,000 of supply expenses, and 41,000 of labor costs. Dwan-Com pays for 2,200 of the supplies and 38,000 of the labor costs in the current year. a. What is Dwan-Coms taxable income if it elects the cash method of accounting? b. What is Dwan-Coms taxable income if it elects the accrual method of accounting? c. What method of accounting do you recommend that Dwan-Com elect?Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $464,000. Of this sum, $58,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $58,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%. a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense?b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment?Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $704,000. Of this sum, $88,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $88,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%. a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense? b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment? Give typing answer with explanation and conclusion
- Ms. T. Potts, the treasurer of Ideal China, has a problem. The company has just ordered a new kiln for $496,000. Of this sum, $62,000 is described by the supplier as an installation cost. Ms. Potts does not know whether the Internal Revenue Service (IRS) will permit the company to treat this cost as a tax-deductible current expense or as a capital investment. In the latter case, the company could depreciate the $62,000 straight-line over 5 years. The tax rate is 30% and the opportunity cost of capital is 5%. a. What is the present value of the cost of the kiln if the installation cost is treated as a separate current expense?b. What is the present value of the cost of the kiln if the installation cost is treated as a part of the capital investment? (Round your answer to the nearest whole dollar amount.)Chanon, Inc. is a supplier of office equipments to the government. The company has recently delivered P2,000,000 worth of equipments but remains unpaid as of date. Yesterday, the company received a Final Assessment Notice from the Bureau of Internal Revenue for deficiency taxes and penalties amounting to P2,000,000. Can Chanon opt not to pay BIR? a. Yes, as the receivable and the tax liability can be set-off as the other party is also the government. b. No, as Chanon can still avail of its judicial remedies. c. Yes, as the claim against the government arose first. d. No, as Chanon's claim is a debt and the government's claim is taxes. These cannot be set-off.Mr. Ben T. Lador, the Chief Accountant, availed of the car plan of Kiowa Company. Under the plan, he will shoulder only half of the cost of the car, with the company shouldering the other half. He paid P450,000 for the car. The car was registered in the name of Mr. Lador. Questions: 1. How much is the fringe benefit tax due? 2. How much is the deductible expense of Kiowa Company?
- Chanon, Inc. is a supplier of office equipments to the government. The company has recently delivered P2,000,000 worth of equipments but remains unpaid as of date. Yesterday, the company received a Final Assessment Notice from the Bureau of Internal Revenue for deficiency taxes and penalties amounting to P2,000,000. Can Chanon opt not to pay BIR? Yes, as the claim against the government arose first. Yes, as the receivable and the tax liability can be set-off as the other party is also the government. No, as Chanon can still avail of its judicial remedies. No, as Chanon's claim is a debt and the government's claim is taxes. These cannot be set-off.Last year Acme paid Ralph $15,000 to install a new air-conditioning unit at its headquarters building. The air conditioner did not function properly, and this year Acme requested that Ralph return the payment. Because Ralph could not repair one critical part in the unit, he refunded the cost of the repair, $5,000, to Acme. A> Is Ralph required to include the $15,000 payment he received last year in his gross income from last year? B> What are the tax implications of the repayment if Ralph was in the 35 per cent tax bracket when he received the $15,000 payment from Acme, but was in the 28 per cent tax bracket when he refunded $5,000 to Acme? C> How would you answer the question in part (b) if Ralph refunded $2,500 to Acme and not $5,000?Trevorson Electronics is a small company privately owned by Jon Trevorson, an electrician whoinstalls wiring in new homes. Because the company’s financial statements are prepared only for taxpurposes, Jon uses the direct write-off method. During 2015, its first year of operations, TrevorsonElectronics sold $30,000 of services on account. The company collected $26,000 of these receivables during the year, and Jon believed that the remaining $4,000 was fully collectible. In 2016,Jon discovered that none of the $4,000 would be collected, so he wrote off the entire amount. Tomake matters worse, Jon sold only $5,000 of services during the year.Required:1. Prepare journal entries to record the transactions in 2015 and 2016.2. Using only the information provided (ignore other operating expenses), prepare comparativeincome statements for 2015 and 2016. Was 2015 really as profitable as indicated by its incomestatement? Was 2016 quite as bad as indicated by its income statement? What should Jon…
