Please show both parts on how to answer this. 2. (20 pts) The following financia

Question

Please show both parts on how to answer this.

2. (20 pts) The following financial information applies to your company for 2015: Sales revenues, $4,350,000 Labor and materials, $970,000 Depreciation for existing assets purchased prior to 2016, $80,000 On January 2, 2016, you purchased $130,000 of equipment classified as 5-year MACRS assets On September 23, 2016, you purchased $210,000 of equipment classified as 7-year MACRS assets Interest expense, $10,200 a) Calculate the total depreciation expenses allowed in 2016. b) Calculate the taxes your company owes for 2016 and your net income for 2016.

Explanation / Answer

a) Total depreciation expense allowed in 2016 = $ 80,000 + $ 130,000/5 + $ 210,000*0.5/7

= $ 80,000 + $ 26,000 + $ 15,000

= $121,000

b) Net Income for 2016 :

Sale = $ 4,350,000

Less:

Labor and Material = $ 970,000

Depreciation expense = $ 121,000

Total cost of goods sold = $ 1,091,000

Gross Profit = $ 3,259,000

Less : Operating Expenses

Interest expense = $ 10,200

Net Income = $3,248,800

Tax @ the applicable rate (assuming it to be 35%) = $ 1,137,080

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