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: --------------------------------11/01/X2 Salvage value:------------------------------------------------------0 Useful life:--------------------------------------------- four yearsMarginal tax rate: ------------------------------------------- 30% Investment interest rate: ---------------------------------- 10%

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

Required: As a newly hired intern you have been requested to prepare a schedule proving the wisdom LM's advice. Please fill the blanks below.

Depreciation Year SYD SL 1 1) 4) 2 WN Difference 125,000 75,000 125,000 25,000 125,000 6) 125,000 -75,000 Marginal Tax Earnings Rate (30%) Tax Savings Net/Tax Balance 0.3 2) $0 3) 0.3 7,500 5) 31,575 0.3 -7,500 2,210.25 26,285.25 0.3 -22,500 1,839.97 8) Total Earnings Net: 9) 3 $100,000 4 7)