Problem 8-52 (LO. 2, 5, 9)

Jamie purchased $100,000 of new office furniture for her business in June of the current year. Jamie understands that if she elects to use ADS to compute her regular income tax, there will be no difference between the cost recovery for computing the regular income tax and the AMT. Jamie wants to know theregularincome tax cost, after three years, of using ADS rather than MACRS.

Assume that Jamie does not elect 179 limited expensing and that her combined state and Federal income marginal tax rate is 32%. She does not claim any available additional first-year depreciation.

Assume a 6% discount rate. The present value factors for a 6% discount rate are as follows:

YearPV Factor at 6%11.000020.943430.890040.839650.792160.747370.705080.6651If required, round interim computations to two decimal places and use rounded values in subsequent computations. Round your final answer to the nearest dollar.

Click here to access thedepreciation tablesto use for this problem.

a.What is the covet recovery at the end of three years under MACRS? $ 56,270

Under ADS? $44,870

What is the present value of the tax cost, after three years, of using ADS rather than MACRS? $ ????

b.What is the present value of the tax savings/costs that result over the life (8 years) of the asset if Jamie uses MACRS rather than ADS? $ ????

Feedback

Assets used in a trade or business or for the production of income are eligible for cost recovery if they are subject to wear and tear, decay or decline from natural causes, or obsolescence. The modified accelerated cost recovery system (MACRS), provides separate cost recovery tables for realty (real property) and personalty (personal property). Certain property is not eligible for accelerated cost recovery and must be depreciated under an alternative depreciation system. (ADS).

NOTES : I need help with the last part of part a and part b. I tried 11,400 (56,270-44,870) for part a and for b I tried 3,648 (11,400 x 32%) and both answers were wrong. Thank you.