16.07.2022 - 13:17

# Wet Dog Perfume Company(WDPC), a profit-making company, purchased a process line for $131,000 and spent another$12,000 on its installation. The line was commissioned in January 2014, and it falls int

Question:

Wet Dog Perfume Company(WDPC), a profit-making company, purchased a process line for $131,000 and spent another$12,000 on its installation. The line was commissioned in January 2014, and it falls into the MCRS seven-year class life. The applicable income tax rate for WDPC is 40 percent, and there is no investment tax credit. Calculate the following:

a). 2015 depreciation for this process line.

b). Amount of tax savings due to this investment.

• a) The annual depreciation for the process line can be calculated using the MACRS (Modified Accelerated Cost Recovery System) depreciation method. The process line falls under the 7-year class life, so the depreciation rate for the second year (2015) is 14.29%. Thus, the depreciation expense for 2015 would be: $131,000 +$12,000 = $143,000 (cost basis)$143,000 x 14.29% = $20,427.70 Therefore, the 2015 depreciation for this process line is$20,427.70. b) To calculate the tax savings due to this investment, we first need to calculate the tax liability before and after considering the depreciation expense. Before depreciation: Profit = Revenue - Expenses Assuming the revenue and expenses for WDPC for 2015 are $500,000 and$400,000 respectively, Profit = $500,000 -$400,000 = $100,000 Tax liability = 40% x$100,000 = $40,000 After depreciation: Profit = Revenue - Expenses - Depreciation Assuming the revenue, expenses and depreciation for WDPC for 2015 are the same as above, Profit =$500,000 - $400,000 -$20,427.70 = $79,572.30 Tax liability = 40% x$79,572.30 = $31,828.92 Tax savings =$40,000 - $31,828.92 =$8,171.08 Therefore, the amount of tax savings due to this investment is $8,171.08. Do you know the answer? Not sure about the answer? Find the right answer to the question Wet Dog Perfume Company(WDPC), a profit-making company, purchased a process line for$131,000 and spent another \$12,000 on its installation. The line was commissioned in January 2014, and it falls int by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.