Jamie purchased $100,000 of new office furniture for her business in June of the currentyear. 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 taxand the AMT. Jamie wants to know the regular income tax cost, after three years, of usingADS rather than MACRS.Assume that Jamie does not elect § 179 limited expensing and that her marginal tax rate is32%. 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:Year PV Factor at 6%11.000020.943430.890040.83960.79210.74730.70500.66515678If required, round interim computations to two decimal places and use roundedvalues in subsequent computations. Round your final answer to the nearest dollar.Click here to access the depreciation tables to 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 thanMACRS?3,464 ✓.b. What is the present value of the tax savings/costs that result over the life (8 years) of theasset if Jamie uses MACRS rather than ADS? $

a. Using ADS over the first three years generates $44,870 of depreciation (versus $56,270 using…

Answered: b. What is the present value of the tax…

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? $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Fringe Benefit Tax

Fringe benefits are in addition to the compensation that companies give to their employees. It is an additional benefit above the stated salary. It helps to keep the employees of the firm motivated as sometimes the only salary is not enough to retain the quality employees of the firm. There are different types of fringe benefits. Fringe benefits are given in both private as well as public enterprises.

Question

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 the regular income tax cost, after three years, of using
ADS rather than MACRS.
Assume that Jamie does not elect § 179 limited expensing and that her 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:
Year PV Factor at 6%
1
1.0000
2
0.9434
3
0.8900
4
0.8396
0.7921
0.7473
0.7050
0.6651
5
6
7
8
If 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 the depreciation tables to 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?
3,464 ✓.
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? $

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