Question

Income Statement, Depreciation table (20 points) Equipment with a first cost of $120.000 is depreciated by MACRS wil period. The estimated expenses are $17,500 each year, annual revenues effective tax rate is 40%. preciated by MACRS with a 5-year recovery year; annual revenues are $90,000. The (a) (10 points) Construct a table showing yearly depreciation rate, dep book value to fully depreciate the machine. any depreciation rate, depreciation amount, and 10 points) Construct a complete income statement (using the format shown in class showing only year 3.

Answer 1

	MACRS -5 years Property rates
	Year 1	20%
	Year 2	32%
	Year 3	19.20%
	Year 4	11.52%
	Year 5	11.52%
	Year 6	5.76%
	Year		Depreciation	Accumulated Depreciation	Book value
	Year 1	20%	$                24,000.00	$                                 24,000.00	$       96,000.00
	Year 2	32%	$                38,400.00	$                                 62,400.00	$       57,600.00
	Year 3	19.20%	$                23,040.00	$                                 85,440.00	$       34,560.00
	Year 4	11.52%	$                13,824.00	$                                 99,264.00	$       20,736.00
	Year 5	11.52%	$                13,824.00	$                             1,13,088.00	$         6,912.00
	Year 6	5.76%	$                   6,912.00	$                             1,20,000.00	$                      -
		Depreciation	Book Value
	Year 1	($120000*20%)	($120000-$24000)
	Year 2	($120000*32%)	($96000-$38400)
	Year 3	($120000*19.20%)	($57600-$23040)
	Year 4	($120000*11.52%)	($34560-$13824)
	Year 5	($120000*11.52%)	($20736-$13824)
	Year 6	($120000*5.76%	($6912-$6912)
	Income Statement (Year -3)
	Revenue	$                    90,000.00
	Less: Expenses	$                    17,500.00
	Income before depreciation and Tax	$                    72,500.00
	Less: Depreciation	$                    23,040.00
	Income before tax	$                    49,460.00
	Less: Income tax@40% of $49460	$                    19,784.00
	Income after tax	$                    29,676.00