Calculate the amount of income tax that supreme must pay

Assignment Help Accounting Basics

Reference no: EM13566634

The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2012. The cost of the asset with a five-year life and zero residual value is $100,000. The company will use the straight-line method of depreciation.

Supreme's income for tax purposes before recording depreciation on the asset will be $50,000 per year for the next five years. The corporation is currently in the 35% tax bracket.

Required:

Calculate the amount of income tax that Supreme must pay each year if the asset is not purchased. Calculate the amount of income tax that Supreme must pay each year if the asset is purchased. What is the amount of the depreciation tax shield?

1. Amount of taxes paid if asset is not purchased is:	$
2. Amount of depreciation if asset is purchased is:	$
3. Amount of taxes paid if asset is purchased is:	$
4. The tax shield provided by depreciation on the asset is:	$

Reference no: EM13566634

Questions Cloud

How does the net present value model complement the : how does the net present value model complement the objective of maximizing shareholder

Gore manufacturing incurred the following costs during the : gore manufacturing incurred the following costs during the year direct materials 22 per unit direct labor 14 per unit

Sdj inc has net working capital of 1100 current : sdj inc. has net working capital of 1100 current liabilities of 4180 and inventory of 1600. what is the current ratio?

How does the basic net present value model of capital : how does the basic net present value model of capital budgeting deal with the problem of project risk? what are the

Calculate the amount of income tax that supreme must pay : the term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. assume

How is the per-unit contribution related to the accounting : how is the per-unit contribution related to the accounting operating profit break-even

Community challenges a nonprofit organization for : community challenges a nonprofit organization for physically and mentally challenged people manufactures a variety of

Explain the difference between marginal and average tax : explain the difference between marginal and average tax rates and identify which of these rates is used in capital

Explain why the required rate of return on a firms assets : explain why the required rate of return on a firms assets must be equal to the weighted average cost of capital

User Account

All Pages