\"The Columbus Electrical Company expects to have an annual taxable income of $6

Question

"The Columbus Electrical Company expects to have an annual taxable income of $692,000 from its residential accounts over the next two years. The company is bidding on a two-year wiring service for a large apartment complex. This commercial service requires the purchase of a new truck equipped with wire-pulling tools at a cost of $53,000. The equipment falls into the MACRS five-years class and will be kept for 10 years. The project will bring an additional annual revenue of $227,000, but it is expected to incur additional annual operating costs of $113,000. Using the Corporate Tax Schedule on Table 9.12, what is the total amount that Columbus Electrical will have to pay in taxes in year 2 if the company decides to work on the project?"

TABLE 9·12 Corporate Tax Schedule for 2015 Taxable Income (X) $0-$50,000 50,001-75,000 75,001-100,000 100,001-335,000 335,001-10,000,000 10,000,001-15,000,000 15,000,001-18,333,333 18,333,334 and up Tax Rate 15% 25% 34% 34% + 5% 34% 35% 35% + 3% 35% Tax Computation Formula $0 + 0.15X 7,500 + 0.25(X - $50,000) 13,750 + 0.34(X - 75,000) 22,250 + 0.39(X - 100,000) 113,900 +0.34(X- 335,000) 3,400,000 + 0.35(X - 10,000,000) 5,150,000 + 0.38(X - 15,000,000) 6,416,666 + 0.35(X - 18,333,333)

Explanation / Answer

Depreciation on equipement in year 2 = cost of equipment * 20%

= 53000*32% = $16,960

Annual taxable income

Corporate tax to be paid = 113900 + 0.34 (789040 - 335000)

= $268,273.6

Revenue $2,27,000 Operating costs $1,13,000 Depreciation $16,960 operating income $97,040 Income from residential accounts $6,92,000 Total taxable income $7,89,040

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