uary 1, 2024, 24, two priv companies

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On January 1, 2024, two private companies that report under ASPE, Blossom Ltd. and Cale Inc., were incorporated. Each company
operates a restaurant and had identical revenues during the year of $2 million but Blossom bought its building for $1.5 million and the
related land for $600,000. The company estimated that the building would have a useful life of 20 years with no residual value.
Blossom uses the straight-line method of depreciation. Because of the building purchase, Blossom had an outstanding 4% bank loan
during the year amounting on average to $2.5 million.
Cale, however, did not buy a building. Instead, it rented a building under a five-year operating lease starting on January 1, 2024, for
$15,000 per month. Because of this, the company had to install leasehold improvements for $200,000, which were completed in the
first few days of January. Because Cale did not have to buy a building, its outstanding 4% bank loan during 2024 averaged only
$350,000.
The income tax rate for both companies is 22%. Assume both companies had identical revenues and expenses except for the items
noted above.
(a)
If Luxor had net income of $150,000 for the year ended December 31, 2024, what net income did Cale have? (Round intermediate
calculation and final answer to O decimal places, e.g. 5,275.)
Cale net income $
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Transcribed Image Text:On January 1, 2024, two private companies that report under ASPE, Blossom Ltd. and Cale Inc., were incorporated. Each company operates a restaurant and had identical revenues during the year of $2 million but Blossom bought its building for $1.5 million and the related land for $600,000. The company estimated that the building would have a useful life of 20 years with no residual value. Blossom uses the straight-line method of depreciation. Because of the building purchase, Blossom had an outstanding 4% bank loan during the year amounting on average to $2.5 million. Cale, however, did not buy a building. Instead, it rented a building under a five-year operating lease starting on January 1, 2024, for $15,000 per month. Because of this, the company had to install leasehold improvements for $200,000, which were completed in the first few days of January. Because Cale did not have to buy a building, its outstanding 4% bank loan during 2024 averaged only $350,000. The income tax rate for both companies is 22%. Assume both companies had identical revenues and expenses except for the items noted above. (a) If Luxor had net income of $150,000 for the year ended December 31, 2024, what net income did Cale have? (Round intermediate calculation and final answer to O decimal places, e.g. 5,275.) Cale net income $ eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer
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