Concept explainers
a.
To calculate: The tax loss on the sale and the tax benefit related to it.
Introduction:
Tax loss:
It is that loss which is incurred when the total deduction that can be claimed in a financial year exceeds the total assessable income of the year.
Tax benefit:
It is the allowable deduction on the assessable income of the taxpayer, with the intent of reducing the tax liability and burden of the taxpayer.
MACRS
MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation, used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.
b.
To calculate: The gain and related tax on the sale of an asset.
Introduction:
Tax liability:
An amount of tax that is owed by a company or an individual to the taxing authority is termed as tax liability.
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Foundations of Financial Management
- Grevilla Corporation is a manufacturing company. The corporation has accumulated earnings of $950,000, and it can establish reasonable needs for $400,000 of that amount. Calculate the amount of the accumulated earnings tax (if any) that Grevilla Corporation is subject to for this year. $_____________arrow_forwardTurnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year. Turnip uses differing depreciation methods for financial reporting and income tax purposes. The depreciation expense during the current year for financial reporting is 1,000 and for income tax purposes is 2,000. Turnip is subject to a 30% enacted future tax rate. Prepare a schedule to compute Turnips (a) ending future taxable amount, (b) ending deferred tax liability, and (c) change in deferred tax liability (deferred tax expense) for the current year.arrow_forwardThe Bookbinder Company had 500,000 cumulative operating losses prior to the beginning of last year. It had 100,000 in pre-tax earnings last year before using the past operating losses and has 300,000 in the current year before using any past operating losses. It projects 350,000 pre-tax earnings next year. a. How much taxable income was there last year? How much, if any, cumulative losses remained at the end of the last year? b. What is the taxable income in the current year? How much, if any, cumulative losses remain at the end of the current year? c. What is the projected taxable income for next year? How much, if any, cumulative losses are projected to remain at the end of next year?arrow_forward
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