Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 16, Problem 33E
Sharpe Machining Company purchased industrial tools costing $100,000, which fall in the 3-year property class under MACRS.
Required:
- 1. Prepare a schedule of
depreciation deductions assuming:- a. The firm uses the accelerated depreciation schedule specified by MACRS.
- b. The firm uses the optional
straight-line depreciation method and the half-year convention.
- 2. Calculate the present value of the depreciation tax shield under each depreciation method listed in requirement (1). Sharpe Machining Company’s after-tax hurdle rate is 12 percent, and the firm’s tax rate is 30 percent.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
1. A special manufacturing and handling device was purchased by Alfonso Manufacturing for
$200,000 and is depreciated over MACRS. CFBT is estimated to amount to $800,000 for the first
2 years followed by $600,000 thereafter until the asset is retained. The effective tax rate, Te is
35% and interest is 10% per year. In present worth dollars determine the CFAT and determine if
it was a viable purchase. (Note answer must be in a tabular format)
Dain's Diamond Bit Drilling purchased the following assets this year.
Asset
Drill bits (5-year)
Drill bits (5-year)
Commercial building
Purchase Date
Mar-03
Jul-17
May-26
Problem 10-59 Part d (Algo)
Assume its taxable income for the year was $61,000 for purposes of computing the §179 expense (assume no bonus
depreciation). (Use MACRS Table 1, Table 2, Table 3, Table 4, and Table 5.)
Note: Leave no answer blank. Enter zero if applicable.
Maximum §179 expense
Original
Basis
$ 90,800
95,800
236,000
d. If the January drill bits' original basis was $4,283,000, what is the maximum amount of §179 expense Dain's may deduct for the year?
$ 3,426,400 x
A company purchased $142,000 of fixed assets that are classified as five-year MACRS property. The MACRS rates are 2, 32, 192, 1152..1152, and 0576 for
Years 1 to 6, respectively. What will the accumulated depreciation be at the end of Year 4 if the tax rate is 21 percent and no bonus depreciation is taken?
Instruction: Enter your response rounded to two decimal places.
Chapter 16 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Explain the following terms: recovery of...Ch. 16 - List and briefly explain two advantages that the...Ch. 16 - List and briefly explain four assumptions...Ch. 16 - Prob. 9RQCh. 16 - Prob. 10RQ
Ch. 16 - Give an example of a noncash expense. What impact...Ch. 16 - Prob. 12RQCh. 16 - What is a depreciation tax shield? Explain the...Ch. 16 - Prob. 14RQCh. 16 - Why is accelerated depreciation advantageous to a...Ch. 16 - Prob. 16RQCh. 16 - Why may the net-present-value and...Ch. 16 - Prob. 18RQCh. 16 - What is meant by the term payback period? How is...Ch. 16 - Prob. 20RQCh. 16 - How is an investment projects accounting rate of...Ch. 16 - Prob. 22RQCh. 16 - Prob. 23RQCh. 16 - Prob. 24ECh. 16 - Refer to the data given in the preceding exercise....Ch. 16 - Prob. 26ECh. 16 - Prob. 28ECh. 16 - Prob. 29ECh. 16 - Prob. 30ECh. 16 - Prob. 31ECh. 16 - Prob. 32ECh. 16 - Sharpe Machining Company purchased industrial...Ch. 16 - The owner of Atlantic City Confectionary is...Ch. 16 - The management of Niagra National Bank is...Ch. 16 - Allegience Insurance Companys management is...Ch. 16 - Prob. 37ECh. 16 - Prob. 38ECh. 16 - The states Secretary of Education is considering...Ch. 16 - The supervisor of the county Department of...Ch. 16 - Prob. 41PCh. 16 - Prob. 42PCh. 16 - Prob. 43PCh. 16 - Special People Industries (SPI) is a nonprofit...Ch. 16 - Washington Countys Board of Representatives is...Ch. 16 - Prob. 46PCh. 16 - Prob. 47PCh. 16 - Mind Challenge, Inc. publishes innovative science...Ch. 16 - Philadelphia Fastener Corporation manufactures...Ch. 16 - Prob. 50PCh. 16 - Prob. 51PCh. 16 - Prob. 52PCh. 16 - Prob. 53PCh. 16 - Prob. 54PCh. 16 - Prob. 55PCh. 16 - Prob. 56PCh. 16 - Pensacola Cablevision Company provides television...Ch. 16 - Pensacola Cablevision Company provides television...Ch. 16 - The board of education for the Central Catskill...Ch. 16 - Prob. 60C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Redbud began operations at the beginning of Year 1, and has one depreciable asset with an original cost of $200, acquired at the start of Year 1. Redbud uses straight-line depreciation over 5 years for financial reporting and MACRS (3-year asset). Information about carrying value and tax basis of the asset is found in the table below. Book Tax Year Depreciation Carrying value MACRS Tax basis 1 40 160 66 134 2 40 120 90 44 3 40 80 30 14 4 40 40 14 5 40 In Years 1 and 2, Redbud had a small amount of positive net income and positive taxable income. In Year 3, Redbud experienced a $2,000 loss for net income. Redbud is not in an industry that is eligible for the carryback option, so Redbud will carry the loss forward. Redbud’s tax rate is 20%. Requirements: Calculate the net operating loss for Year 3. Prepare the journal entry to record income taxes for Year 3. Assume that Redbud only expects to realize 60% of the tax carryforward in future years.…arrow_forwardA has an investment property acquired at a cost of P2,000,000. Depreciation is estimated to be P50,000 annually and a periodic repair costs of P15,000 per year as well as property tax of P5,000 are incurred by the company on an annual basis. The fair value of the investment property before taxes and repairs amounts to P2,100,000 at year end. What is the carrying value of A's investment property on December 31, 2021 considering that the fair value model is used?arrow_forwardIn year 1, Firm A paid $49,000 cash to purchase a tangible business asset. In year 1 and year 2, it deducted $3,040 and $6,600 depreciation with respect to the asset. Firm A's marginal tax rate in both years was 21 percent. Required: a. Compute Firm A's net cash flow attributable to the asset purchase in each year. b. Compute Firm A's adjusted basis in the asset at the end of each year. Complete this question by entering your answers in the tabs below. Required A Required B Compute Firm A's net cash flow attributable to the asset purchase in each year. Note: Cash outflows should be indicated by a minus sign. Round your intermediate calculations and final answers to nearest whole dollar amount. Before-tax cash flows Tax (cost) or savings Net cash flow Year 1 Year 2arrow_forward
- An asset used in a 4-year project falls in the 5-year MACRS class, for tax purposes. The asset has an acquisition cost of $20,349,349 and will be sold for $7,887,127 at the end of the project. If the tax rate is 0.29, what is the aftertax salvage value of the asset (SVNOT)? Modified ACRS depreciation allowances TABLE 9.7 Year 12345678 2 3-Year 33.33% 44.45 14.81 7.41 Property Class 5-Year 20.00% 32.00 19.20 11.52 11.52 5.76 7-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46arrow_forwardDain's Diamond Bit Drilling purchased the following assets this year. Assume its taxable income for the year was $53,000 before deducting any $179 expense (assume no bonus depreciation). Asset Purchase Date Original Basis $ 90,000 January 25 July 25 April 22 Drill bits (5-year) Drill bits (5-yoar) Commercial building 95,000 220,000 a) What is the maximum amount of $179 expense Dain may deduct for the year? b) What is Dain's maximum depreciation expense for the year (including $179 expense)? c) If the January drill bits' original basis was $2,375,000, what is the maximum amount of $179 expense Dain may deduct for the year? d) If the January drill bits' basis was $2,495,000, what is the maximum amount of $179 expense Dain may deduct for the year?arrow_forwardII. MACRS COMPUTATIONS. Compute the allowable MACRS deduction under each of the following independent situations. Show computations for partial credit. In 2021, Early Company made its only purchase of equipment on October 18. The equipment was used property, costing $1,000,000. Assuming the equipment is in the 5-year recovery class, answer the following 1. questions. a. Can Early Co. elect to use bonus depreciation for the equipment? b. If Early cannot or does not wish to use bonus depreciation for the equipment, what depreciation conventic (table) does Early use for the equipment?arrow_forward
- A distribution center purchased an equipment for $100,000 and has depreciated the equipment using the MACRS depreciation schedule as a 7-year property. The operating income in year 2 was $200,000 and the expenses were $87,000. If the company is in the 40% income tax bracket. i) What is the depreciation in year 2? $ ii) What is the taxable income in year 2? $ iii) What is the tax in year 2? $ iv) What is the book value of the equipment after year 2? $arrow_forwardGenetic Insights Co. purchases an asset for $10,473. This asset qualifies as a seven-year recovery asset under MACRS. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. Genetic Insights has a tax rate of 30%. The asset is sold at the end of six years for $4,805. Calculate book value of an asset. Round the answer to two decimals.arrow_forwardAssume the following: . A firm acquires an asset for $120.000 with a 5 year useful life and no salvage . The asset will generate $50,000 of cash flow for all five years . The tax rate is 20% . The firm will depreciate the asset over four years on a straight-line (SL) basis for tax purposes and over five years on a SL basis for financial reporting purposes. Taxable income in year 1 is: $26.000 $20.000 © $4.000arrow_forward
- A firm purchased an asset with a 5-year life for $90,000, and it cost $10,000 for shipping and installation. According to the current tax laws the cost basis of the asset at time of purchase is:arrow_forwardEntity A acquires a building for P1,000,000. The building is to be leased out under various operating leases. The building has an estimated useful life of 10 years and zero residual value. Entity A uses the cost model for its property, plant and equipment and the fair value model for its investment property. At the end of Year 1, the building is assessed to have a fair value of P1,080,000.How much should Entity A recognize in profit or loss in relation to the building?arrow_forwardEntity A acquires a building for ₱1,000,000. The building is to be leased out under various operating leases. The building has an estimated useful life of 10 years and zero residual value. Entity A uses the cost model for its property, plant and equipment and the fair value model for its investment property. At the end of Year 1, the building is assessed to have a fair value of ₱1,080,000. How much should Entity A recognize in profit or loss in relation to the building? a. 80,000 gain on change in fair value b. 100,000 depreciation c. 180,000 gain on change in fair value d. b and carrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License