3. (20 pts) The following financial information applies to your company for 2015
ID: 2467902 • Letter: 3
Question
3. (20 pts) The following financial information applies to your company for 2015:
Sales revenues, $3,250,000
Labor and materials, $900,000
Depreciation for existing assets purchased prior to 2015, $70,000
On January 2, 2015, you purchased $150,000 of equipment classified as 5-year MACRS assets
On October 10, 2015, you purchased $200,000 of equipment classified as 7-year MACRS assets
Interest expense, $11,000
a) Calculate the total depreciation expenses allowed in 2015.
b) Calculate the taxes your company owes for 2015 and your net income for 2015.
Explanation / Answer
Calculation of Depreciation Expense Cost Depreciation 2-Jan-15 Purchase of equipment 150000 MACRS depreciation rate for year 1- 5 year property-Mid qtr convention-Ist qtr 35% 52500 Oct 10 2015 Purchase of equipment 200000 MACRS depreciation rate for year 1- 7 year property-Mid qtr convention-fourth qtr 3.57% 7140 Prior to purchase of new equipment $70,000 Total Depreciation 129640 Now there is mid qtr convention test if the asset is acquired in the last three months is more than 40% of total assets purchased in the year than mid conention can be used So it will be applied on all MACRS assets Calculation onf Net Income Sales & Revenue 3250000 Less: Labour & Material 900000 Gross Profit 2350000 Less:Depreciation 129640 Less Interest expense 11000 Net Income 2209360 Taxes 113900+34%*(2209360-335000) 751182 Calculation of Depreciation Expense Cost Depreciation If half year convention used 2-Jan-15 Purchase of equipment 150000 MACRS depreciation rate for year 1- 5 year property-Half year conention 20% 30000 Oct 10 2015 Purchase of equipment 200000 MACRS depreciation rate for year 1- 7 year property-Half year convention 14.29% 28580 Prior to purchase of new equipment 70000 Total Depreciation 128580 Now there is mid qtr convention test if the asset is acquired in the last three months is more than 40% of total assets purchased in the year than mid conention can be used So it will be applied on all MACRS assets Calculation onf Net Income Sales & Revenue 3250000 Less: Labour & Material 900000 Gross Profit 2350000 Less:Depreciation 128580 Less Interest expense 11000 Net Income 2210420 Taxes 113900+34%*(2210420-335000) 751542.8
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.