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What is the effect of taking the action on the tax payments

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Question - The treasurer of We-Manipulate Manufacturing Company is trying again to find ways to manipulate the firm's income. Fiscal year 2020 is just about to end and the company's president has asked the treasurer to come up with a list of ways to boost income for 2020. (Assume that income is recognized at the time of sale.) Consider the following suggestion:

Change the estimated salvage value of its largest piece of equipment from $10,000 to $20,000. The equipment was purchased at the beginning of 2019 for $50,000 and is being depreciated for financial reporting purposes using the straight-line method, with an estimated life of 10 years. For tax purposes it is being depreciated using the method required by the IRS.

Required -

a. What is the effect of taking the action on the firm's reported net income before taxes for 2020?

b. What is the effect of taking the action on the tax payments made to the IRS in 2020?

Reference no: EM133061816

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