Widget Industries erected a facility costing $1.56 million on land bought for $1 million. The firm used straight-line depreciation over a 39-year period; it installed $2.5 million worth of plant and office equipment (all classified as MACRS 7-year property). Gross income from the first year of operations (excluding capital expenditures) was $8.2 million, and $5.8 million was spent on labor and materials. How much did Widget pay in federal income taxes for the first year of operation? (a) $680,935 (b) $1,002,750 (c) $1,321,815 (d) $2,788,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Widget Industries erected a facility costing $1.56 million on land bought for $1 million. The firm used straight-line
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