1. The Johnson Company bought a truck costing $24,000 two and a half years ago.
ID: 2632080 • Letter: 1
Question
1. The Johnson Company bought a truck costing $24,000 two and a half years ago. The truck's estimated life was four years at the time of purchase. It was accounted for by using straight line depreciation with zero salvage value. The truck was sold yesterday for $17,000. If the Johnson Company is subject to a marginal tax rate of 30%, what is the cash flow associated with the sale of the used truck? Round the answer to the nearest cent. '
2. Gatwick Ltd. has after-tax profits (net income) of $600,000 and no debt. The owners have a $7 million equity investment in the business. If they borrow $1 million at 10% and use it to retire stock, how will the return on their investment (equity) change if earnings before interest and taxes remains the same? Assume a flat 35% tax rate and that the loan reduces equity dollar for dollar. Round the answers to 2 decimal places.
New return
3.
Use the following tax brackets for taxable income:
Compute the average tax rate for the following taxable income amounts. Round the answers to 2 decimal places.
Original returnNew return
3.
Use the following tax brackets for taxable income:
Bracket ?????? Tax Rate $0 - $10,000 ?????? 15% $10,000 - $50,000 ?????? 25% $50,000 - $250,000 ?????? 30% over $250,000 ?????? 35%Compute the average tax rate for the following taxable income amounts. Round the answers to 2 decimal places.
a. $23,000 b. $220,000 c. $350,000 d. $1,000,000Explanation / Answer
1. Yearly depreciation on the truck is
$24,000 / 4 = $6,000
and depreciation for 2.5 years is
$6,000
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