Problem H-2

HB302

The Green Pine Hotel has always depreciated its fixed assets using the straight-line method for both book and tax purposes. L.M. Branch, a newly hired tax consultant, has suggested this results in excessive taxes and has recommended the SYD method be used for future equipment purposes.

Planned equipment purchases for 20X2 and other relevant information are as follows:

Cost of Equipment:-------------------------------------$500,000

Assumed purchase date: --------------------------------111/X2

Salvage value:------------------------------------------------------0

Useful life:--------------------------------------------- fouryears

Marginal tax rate: ------------------------------------------- 30%

Investment interest rate: ---------------------------------- 10%

Assume: All "tax savings" foroneyear are invested at the beginning of the following year.

Required:

As a newly hired intern you have been requested to make a schedule proving the wisdom LM's advice