You do not need a cash flow diagram for this problem.) The following financial i

ID: 2440267 • Letter: Y

Question

You do not need a cash flow diagram for this problem.) The following financial information applies to your company for fiscal year 2017:

•Sales revenues, $3 ,800,000

•Labor, $790,000

•Depreciation allowed in 2017 for existing assets purchased prior to 2017, $80,000

•On January 2, 2017, you purchased $190, 000 of equipment classified as 7-year MACRS assets

•On September 23, 2017, you purchased $280,000 of equipment classified as 5-year MACRS assets

•Interest expense, $10,200

a) Calculate the total depreciation expenses allowed in 2017.

b) Calculate the taxes your company owes for 2017 and your net income for 2017 (assume 21% tax rate).

MACRS depreciation rate in Year-1 for 7 year asset = 14.29%

MACRS depreciation rate in Year-1 for 5 year asset = 20%

Total depreciation expense allowed in 2017 = 80000 + 14.29%*190000 + 20%*280000

Total depreciation expense allowed in 2017 =$163151

Taxable income = Revenue – labor cost – total depreciation – interest expenses

Taxable income = 3800000 - 790000 - 163151 - 10200

Taxable income = $2836649

So,

Taxes owed = 2836649*21%

Taxes owed = $595696.29

Net income = 2836649*(1-21%) + depreciation = 2836649*(1-21%) + 163151

Net income = $2404103.71

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