Assume that today is December 31, 2015. Mike Mulligan Excavation Inc. has one Ca
ID: 2782451 • Letter: A
Question
Assume that today is December 31, 2015. Mike Mulligan Excavation Inc. has one Caterpillar 345DL Hydraulic Excavator. It was purchased in 2014 for$ 300,000.
The excavator is classified as a 10-year property. (MACRS depreciation rates are shown in the table .)
Selected financial values for 2015 are shown in the table, below. Assume a corporate tax rate of 35 %
.How much tax is owed in 2015 if it is a regular year of operations? (Assume that the interest expense is zero.)
Selected Financial Values 2015
Mike Mulligan Excavations Inc.
Sales
$ 2,456,000
Cost of Goods Sold
$ 1,027, 000
S, G & A
$ 817,300
The tax owed is ? (Round to the nearest dollar.)
Explanation / Answer
Referring to the MACRS tables - Depreciation rate for 2nd year = 10% . So depreciation = 300000 * 10% = 30000 is charged to the income statement.
Tax owed = 581700 * 35% = 203595 ..............final answer
Sales 2456000 (-) Cost of goods sold 1027000 Gross profit 1429000 (-) SG & A 817300 (-) Depreciation 30000 Profit before tax 581700