Depreciadon Taxid The term bax shred refers to the amount of income tax sayed by deducting depreciation for income tax purposes. Assume that Rummy Company is considering the purchase of an asset as of January 1, 2017. The cost of the set with a five-year it and sero residual value is 160 000. The company will use the double-dedining balance method of depreciation Rommy's income for tax purposes before recording depreciation on the asset will be 162.000 per year for the next five years. The corporation is currently in the 30% tax brack Required Calculate the amount of income tax that Ruminy must pay each year if the asset is not purchased per year if the act is not purchased Calculate the amount of income tax that Rummy must pay each year if the asset is purchased. If necessary, mund any depreciation calculations and income tax amounts to the nearest do Year 2017 2010 2019 2030 2021 Grand Total Tax 30% c. What is the amount of tax shield over the life of the asset d. What is the amount of tax shield for Rummy if it uses the straight-line method over the life of the Why would Rummy choose to use the accelerated method They would save taxes earlier rather than later. There is no depreciation expense they do not purchase the asset. Determine depreciation expense using the straight-line method Determine tax by multipling income by tax rate. The depreciation ta shield the amount of incom saved by purch of the st Module 6 Homework Depreciation as a Tax Shield The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Rummy Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $60,000. The company will use the double-declining-balance method of depreciation. Rummy's income for tax purposes before recording depreciation on the asset will be $62,000 per year for the next five years. The corporation is currently in the 30% tax bracket. Required: a. Calculate the amount of income tax that Rummy must pay each year if the asset is not purchased. per year if the asset is not purchased b. Calculate the amount of income tax that Rummy must pay each year if the asset is purchased. If necessary, round any depreciation calculations and income tax amounts to the nearest dollar. Year 2017 2018 2019 2020 Tax 30% 2021 Grand Total c. What is the amount of tax shield over the life of the asset? " d. What is the amount of tax shield for Rummy if it uses the straight-line method over the life of the asset? e. Why would Rummy choose to use the accelerated method? They would save taxes earlier rather than later,