A computer-controlled milling machine will cost Ajax Manufacturing $65,000 to pu

Question

A computer-controlled milling machine will cost Ajax Manufacturing $65,000 to purchase plus $4,700 to install.

a.) If the machine would have a salvage value of $6,600 at EOY 20, how much could Ajax charge annually to depreciation of this equipment? Ajax uses straight-line depreciation.

b.) What is the book value of the machine at EOY 3?

c.) Ajax Manufacturing earns a net profit before tax (also called a taxable income) of $28,800,000. How much tax would Ajax owe for this year?

Clearly solve this problem step-by-step using Microsoft Excel, with correct formulas used to solve each part.

Explanation / Answer

a)Total cost of machinery=Manufacturing Cost + Installation cost=65000+4700=69700

Salvage Value=6600

Depreciationas per straight line method=Total Cost-Salvage Value /No of Yrs=69700-6600/20=3155.

b)Book value of Machinery at EOY3=Cost of machinery-Dep for year 1-Dep for year 2=69700-3155-3155=63390

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