Chapter 7, Problem 7.3.2C

To determine

Concept Introduction:

Straight line method of depreciation:

This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Requirement-1:

To Calculate:

The Net Income for each year using the Straight Line Method

Answer to Problem 7.3.2C

The Net income for each year using the Straight Line Method is as follows:

Year	Net income
20Y2	$ 222,000
20Y3	$ 444,000
20Y4	$ 444,000
20Y5	$ 444,000
20Y6	$ 444,000
20Y7	$ 462,000

Explanation of Solution

The Net Income for each year using the Straight Line Method is calculated as follows:

Year	Income before Depreciation and Tax	Depreciation	Income before Tax	Income Tax	Net income
	A	B	C =A-B	D=C*40%	E=C-D
20Y2	$ 400,000	$ 30,000	$ 370,000	$148,000	$ 222,000
20Y3	$ 800,000	$ 60,000	$ 740,000	$296,000	$ 444,000
20Y4	$ 800,000	$ 60,000	$ 740,000	$296,000	$ 444,000
20Y5	$ 800,000	$ 60,000	$ 740,000	$296,000	$ 444,000
20Y6	$ 800,000	$ 60,000	$ 740,000	$296,000	$ 444,000
20Y7	$ 800,000	$ 30,000	$ 770,000	$308,000	$ 462,000

To determine

Concept Introduction:

Straight line method of depreciation:

This is one of the methods to calculate the depreciation on assets. Under this method the depreciable value of asset it divided equally for each year f its estimated life. The formula to calculate the deprecation under straight line method is as follows:

  $AnnualStraightlinedepreciation=\frac{\left(Cost-SalvageValue\right)}{Estimatedlifeinyears}$

Requirement-1:

To Calculate:

The Net Income for each year using the MCRS Method

Year	Net income
20Y2	$ 222,000
20Y3	$ 422,400
20Y4	$ 445,440
20Y5	$ 459,264
20Y6	$ 459,264
20Y7	$ 469,632

Answer to Problem 7.3.2C

The Net Income for each year using the MCRS Method is as follows:

Explanation of Solution

The Net Income for each year using the MCRS Method is calculated as follows:

Year	Income before Depreciation and Tax	Depreciation	Income before Tax	Income Tax	Net income
	A	B	C =A-B	D=C*40%	E=C-D
20Y2	$ 400,000	$ 30,000	$ 370,000	$148,000	$ 222,000
20Y3	$ 800,000	$ 96,000	$ 704,000	$281,600	$ 422,400
20Y4	$ 800,000	$ 57,600	$ 742,400	$296,960	$ 445,440
20Y5	$ 800,000	$ 34,560	$ 765,440	$306,176	$ 459,264
20Y6	$ 800,000	$ 34,560	$ 765,440	$306,176	$ 459,264
20Y7	$ 800,000	$ 17,280	$ 782,720	$313,088	$ 469,632