On January 6, 2021, Outtahe Company paid $255,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $1,500, sales tax of $6,600. and $31,900 for a special platform on which to place the computer. Outtahe's management estimates that the computer will remain in service for five years and have a residual value of $30,000. The computer will process 55,000 documents the first year, with annual processing decreasing by 2,500 documents during each of the next four years (that is, 52,500 documents in 2022: 50.000 documents in 2023; and so on). For help with deciding which depreciation method to use, the company president has requested a depreciation schedule for each of the three depreciation methods. If rounding is necessary, use two decimal places for the depreciation amount per document. Read the requirements 53,000 118,000 Depreciation expense Income before income tax 99,000 39,600 34,000 13,600 Income tax expense S 59,400 $ 20,400 Net income Net income advantage of method that - X Requirements S 39,000 maximizes reported income Finally, compare the cash flows. Show which method gives the cash-flow advantage. Depreciation Method that in the Early Years Maximizes Reported Minimizes Income Income Tax Payments Net cash flow analysis for first year Net cash provided by operations before income tax Income tax expense S 112.400 $ 138,400 Cash provided by operations (cash flow) Cash flow advantage of method that 1. For each of the generally accepted depreciation methods, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 2. For financial reporting purposes, Outtahe uses the depreciation method that maximizes reported income in the early years of an asset's use. For income tax purposes, the company uses the depreciation method that minimizes income tax payments in those early years. Consider the first year Outtahe Co. uses the computer. Identify the depreciation methods that meet Outtahe's objectives, assuming the income tax authorities permit the use of any of the methods. 3. Net cash provided by operations before income tax is $152,000 for the computer's first year. The company's income tax rate is 40%. For the two depreciation methods identified in requirement 2. compare the net income and net cash provided by operations (cash flow). Show which method gives the net income advantage and which method gives the cash flow advantage. Print Done minimizes income tax payments Help me solve this Etext pages Calculator Clear all Check answer On January 6, 2021, Outtahe Company paid $255,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $1,500, sales tax of $6,600. and $31,900 for a special platform on which to place the computer. Outtahe's management estimates that the computer will remain in service for five years and have a residual value of $30,000. The computer will process 55,000 documents the first year, with annual processing decreasing by 2,500 documents during each of the next four years (that is, 52,500 documents in 2022: 50.000 documents in 2023; and so on). For help with deciding which depreciation method to use, the company president has requested a depreciation schedule for each of the three depreciation methods. If rounding is necessary, use two decimal places for the depreciation amount per document. Read the requirements 53,000 118,000 Depreciation expense Income before income tax 99,000 39,600 34,000 13,600 Income tax expense S 59,400 $ 20,400 Net income Net income advantage of method that - X Requirements S 39,000 maximizes reported income Finally, compare the cash flows. Show which method gives the cash-flow advantage. Depreciation Method that in the Early Years Maximizes Reported Minimizes Income Income Tax Payments Net cash flow analysis for first year Net cash provided by operations before income tax Income tax expense S 112.400 $ 138,400 Cash provided by operations (cash flow) Cash flow advantage of method that 1. For each of the generally accepted depreciation methods, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 2. For financial reporting purposes, Outtahe uses the depreciation method that maximizes reported income in the early years of an asset's use. For income tax purposes, the company uses the depreciation method that minimizes income tax payments in those early years. Consider the first year Outtahe Co. uses the computer. Identify the depreciation methods that meet Outtahe's objectives, assuming the income tax authorities permit the use of any of the methods. 3. Net cash provided by operations before income tax is $152,000 for the computer's first year. The company's income tax rate is 40%. For the two depreciation methods identified in requirement 2. compare the net income and net cash provided by operations (cash flow). Show which method gives the net income advantage and which method gives the cash flow advantage. Print Done minimizes income tax payments Help me solve this Etext pages Calculator Clear all Check
