Tax Assessment

Finally, Ms. Morrison has one last requestshe needs help understanding the tax consequences of the disposal of some old equipment. Prepare a CCA schedule for tax depreciation of equipment purchased three years ago on January 1, 2015 for $340,000 (assume Class 46 with CCA rate of 30% and half-year rule applying). Calculate the tax consequence if all the equipment were to be sold at the beginning of this year (i.e., end of 2017) for either $120,000 or $160,000. The equipment is the only asset in the class. Utilize the average tax rate that PCH had in the last five years in your analysis of the tax impact.

Equipment Disposal		Marks
	CCA Schedule	5
	Calculation of Terminal Loss Sold	1
	Calculation of Tax Savings	1
	Interpretation of terminal loss	1
	Calculation of Recaptured CCA	1
	Calculation of Tax Savings	1
	Interpretation of recapture	1
	Correct Tax Rate	1

Pear Computer Horizons Statement of Financial Position (Balance Sheet) At Dec 31, 2017 In millions of dollars Assets Cash Accounts Receivable Inventory Total Current Assets 2013 $60.00 $60.00 $100.00 $220.00 2014 $13.40 $70.00 $90.00 $173.40 2015 $4.03 $70.00 $80.00 $154.03 2016 $33.58 $100.00 $70.00 $203.58 2017 $85.97 $130.00 $60.00 $275.97 Gross Property Plant & Equipment Less: Accumulated Depreciation Net Property, Plant, & Equipment Intangible Assets Total Long-Term Assets $250.00 -$50.00 $200.00 $100.00 $300.00 $350.00 -$75.00 $275.00 $120.00 $395.00 $450.00 -$100.00 $350.00 $140.00 $490.00 $500.00 -$125.00 $375.00 $140.00 $515.00 $600.00 -$150.00 $450.00 $150.00 $600.00 Total Assets $520.00 $568.40 $644.03 $718.58 $875.97 Liabilities Account Payable Accrued Liabilities Current Liabilities Long-term Debt $50.00 $20.00 $70.00 $150.00 $70.00 $30.00 $100.00 $150.00 $90.00 $40.00 $130.00 $150.00 $80.00 $40.00 $120.00 $150.00 $100.00 $20.00 $120.00 $150.00 $220.00 Total Liabilities $250.00 $280.00 $270.00 $270.00 Shareholder's Equity Common Shares Preferred Shares Retained Earnings Total Equity $175.00 $25.00 $100.00 $300.00 $175.00 $25.00 $118.40 $318.40 $175.00 $25.00 $164.03 $364.03 $175.00 $25.00 $248.58 $448.58 $175.00 $25.00 $405.97 $605.97 $520.00 $568.40 Total Liabilities & Equity $644.03 $718.58 $875.97 Pear Computer Horizons Statement of Earnings (Income Statement) For the Year Ended Dec 31, 2017 In millions of dollars 2013 2014 2015 2016 2017 Revenue Computers Phones Software & Gaming Total Revenue $150.00 $75.00 $50.00 $275.00 $172.50 $150.00 $62.50 $385.00 $198.38 $210.00 $78.13 $486.50 $228.13 $294.00 $97.66 $619.79 $262.35 $411.60 $122.07 $796.02 $96.25 $178.75 $134.75 $250.25 $165.41 $321.09 $204.53 $415.26 $238.81 $557.21 Cost of Goods Sold (COGS) Gross Profit Operating Expenses Advertising & Marketing General & Administrative Research, IT, & Development Depreciation & Amortization Total Operating Expenses $27.50 $41.25 $30.00 $25.00 $123.75 $38.50 $57.75 $34.50 $25.00 $155.75 $48.65 $72.98 $39.68 $25.00 $186.30 $61.98 $92.97 $45.63 $25.00 $225.57 $79.60 $119.40 $52.47 $25.00 $276.48 Operating Income Interest Expense Pre-tax Income Income Taxes Net Income (Loss) $55.00 $9.00 $46.00 $9.20 $36.80 $94.50 $9.00 $85.50 $17.10 $68.40 $134.79 $9.00 $125.79 $25.16 $100.63 $189.68 $9.00 $180.68 $36.14 $144.55 $280.74 $9.00 $271.74 $54.35 $217.39 Pear Computer Horizons Statement of Financial Position (Balance Sheet) At Dec 31, 2017 In millions of dollars Assets Cash Accounts Receivable Inventory Total Current Assets 2013 $60.00 $60.00 $100.00 $220.00 2014 $13.40 $70.00 $90.00 $173.40 2015 $4.03 $70.00 $80.00 $154.03 2016 $33.58 $100.00 $70.00 $203.58 2017 $85.97 $130.00 $60.00 $275.97 Gross Property Plant & Equipment Less: Accumulated Depreciation Net Property, Plant, & Equipment Intangible Assets Total Long-Term Assets $250.00 -$50.00 $200.00 $100.00 $300.00 $350.00 -$75.00 $275.00 $120.00 $395.00 $450.00 -$100.00 $350.00 $140.00 $490.00 $500.00 -$125.00 $375.00 $140.00 $515.00 $600.00 -$150.00 $450.00 $150.00 $600.00 Total Assets $520.00 $568.40 $644.03 $718.58 $875.97 Liabilities Account Payable Accrued Liabilities Current Liabilities Long-term Debt $50.00 $20.00 $70.00 $150.00 $70.00 $30.00 $100.00 $150.00 $90.00 $40.00 $130.00 $150.00 $80.00 $40.00 $120.00 $150.00 $100.00 $20.00 $120.00 $150.00 $220.00 Total Liabilities $250.00 $280.00 $270.00 $270.00 Shareholder's Equity Common Shares Preferred Shares Retained Earnings Total Equity $175.00 $25.00 $100.00 $300.00 $175.00 $25.00 $118.40 $318.40 $175.00 $25.00 $164.03 $364.03 $175.00 $25.00 $248.58 $448.58 $175.00 $25.00 $405.97 $605.97 $520.00 $568.40 Total Liabilities & Equity $644.03 $718.58 $875.97 Pear Computer Horizons Statement of Earnings (Income Statement) For the Year Ended Dec 31, 2017 In millions of dollars 2013 2014 2015 2016 2017 Revenue Computers Phones Software & Gaming Total Revenue $150.00 $75.00 $50.00 $275.00 $172.50 $150.00 $62.50 $385.00 $198.38 $210.00 $78.13 $486.50 $228.13 $294.00 $97.66 $619.79 $262.35 $411.60 $122.07 $796.02 $96.25 $178.75 $134.75 $250.25 $165.41 $321.09 $204.53 $415.26 $238.81 $557.21 Cost of Goods Sold (COGS) Gross Profit Operating Expenses Advertising & Marketing General & Administrative Research, IT, & Development Depreciation & Amortization Total Operating Expenses $27.50 $41.25 $30.00 $25.00 $123.75 $38.50 $57.75 $34.50 $25.00 $155.75 $48.65 $72.98 $39.68 $25.00 $186.30 $61.98 $92.97 $45.63 $25.00 $225.57 $79.60 $119.40 $52.47 $25.00 $276.48 Operating Income Interest Expense Pre-tax Income Income Taxes Net Income (Loss) $55.00 $9.00 $46.00 $9.20 $36.80 $94.50 $9.00 $85.50 $17.10 $68.40 $134.79 $9.00 $125.79 $25.16 $100.63 $189.68 $9.00 $180.68 $36.14 $144.55 $280.74 $9.00 $271.74 $54.35 $217.39