Depreciation as a Tax Shield The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $123,300. The company will use the straight-line method of depreciation. Supreme's income for tax purposes before recording depreciation on the asset will be $46,900 per year for the next five years. The corporation is currently in the 30% tax bracket. Required: Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased. 1. Amount of taxes paid if asset is not purchased is: $fill in the blank 1 2a. Amount of depreciation if asset is purchased is: $fill in the blank 2 b. Amount of taxes paid if asset is purchased is: $fill in the blank 3 3. What is the amount of the depreciation tax shield? $fill in the blank 4
Depreciation as a Tax Shield The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $123,300. The company will use the straight-line method of depreciation. Supreme's income for tax purposes before recording depreciation on the asset will be $46,900 per year for the next five years. The corporation is currently in the 30% tax bracket. Required: Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased. 1. Amount of taxes paid if asset is not purchased is: $fill in the blank 1 2a. Amount of depreciation if asset is purchased is: $fill in the blank 2 b. Amount of taxes paid if asset is purchased is: $fill in the blank 3 3. What is the amount of the depreciation tax shield? $fill in the blank 4
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The term tax shield refers to the amount of income tax saved by deducting depreciation for income tax purposes. Assume that Supreme Company is considering the purchase of an asset as of January 1, 2017. The cost of the asset with a five-year life and zero residual value is $123,300. The company will use the straight-line method of depreciation.
Supreme's income for tax purposes before recording depreciation on the asset will be $46,900 per year for the next five years. The corporation is currently in the 30% tax bracket.
Required:
Calculate the amount of income tax that Supreme must pay each year if the asset is and is not purchased.
| 1. Amount of taxes paid if asset is not purchased is: | $fill in the blank 1 |
| 2a. Amount of depreciation if asset is purchased is: | $fill in the blank 2 |
| b. Amount of taxes paid if asset is purchased is: | $fill in the blank 3 |
| 3. What is the amount of the depreciation tax shield? | $fill in the blank 4 |
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