Answer:
a-1. Amount of rise in government expenditure required = $6.25 billion
a-2. Tax multiplier = -3
b. The combination is as follows:
Increase in spending = $25 billion
increase in taxes = $25 billion
Explanation:
a-1. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? $ billion.
Spending multiplier = 1 / (1 - MPC) = 1 / (1 - 0.75) = 4
Amount of rise in government expenditure required = Change in aggregate demand / Spending multiplier = $25 / 4 = $6.25 billion
a-2. How large a tax cut would be needed to achieve the same increase in aggregate demand? $ billion.
Tax multiplier = - MPC / (1 - MPC) = - 0.75 / (1 - 0.75) = -3
Amount of tax cut required = Change in aggregate demand / Tax multiplier = $25 / (-3) = $8.33 billion
b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt (because it maintains a balanced budget, G = T).
The amount is the amount of the balanced budget, which has a multiplier of one. This indicates that spending and taxes need be increased by $25 billion each to boost GDP by $125 billion. Therefore, the combination is as follows:
Increase in spending = $25 billion
increase in taxes = $25 billion
Under what circumstance would agency conflict be most likely to increase? When owners are very close to the business. When owners are separated from the business. When oversight by the board is adequate. When the incentives of a manager align with those of owners.
Answer:
When owners are separated from the business
Explanation:
Agency conflict arises when ownership is separated from management and management have to take decision to maximize wealth of owner instead of themselves.
Hence when owners are separated from the business is the correct answer.
Required: Mr. Jones, eager to please the board of directors, requests you, as the newly appointed management accountant, to prepare appropriate statements highlighting the following: a) The standard production cost per Wallop (3) b) A detailed reconciliation statement of the standard gross profit with the actual gross profit for the month of May. The reconciliation statement should show all possible variances in as much detail as possible. Note: Where applicable, clearly label your answer as favourable (F), or unfavourable (U). Failure to do so will cause you to forfeit
Answer:
I don't understand what you wrote
Explanation:
please reply sir
_plan is a written document that details the necessary actions to achieve one or more marketing objectives. It can be for a product or service, brand, or a product line. It covers between one and five years
Backus Inc. makes and sells many consumer products. The firm’s average contribution margin ratio is 26%. Management is considering adding a new product that will require an additional $12,000 per month of fixed expenses and will have variable expenses of $9 per unit.Required:a. Calculate the selling price that will be required for the new product if it is to have a contribution margin ratio equal to 25%. (Round your answer to 2 decimal places.)b. Calculate the number of units of the new product that would have to be sold if the new product is to increase the firm's monthly operating income by $7,500. (Do not round intermediate calculations.)
Answer and Explanation:
a. The computation of the selling price is given below:
= $9 ÷ (1 - 0.25)
= $12 per unit
b. The number of units that should be sold in the case when the operating income is increased by $7,500
= ($12,000 + $7,500) ÷ ($12 - $9)
= 6,500 units
Hence, the same should be considered and relevant
What is Brad doing when he starts dialoguing with his colleagues about their opinions related to tobacco use at the hospital
Answer: Using collective strategies
Explanation:
Collective strategies has to do with the organizing of people in order to be able to change health damaging environment and this is done through several strategies such as the provision of educational forums, building coalitions, lobbying for legislative changes etc.
Therefore, Brad dialogue with his colleagues about their opinions related to tobacco use at the hospital is the use of collective strategies.
Marquis Company uses a weighted-average perpetual inventory system.
August 2 10 units were purchased at $12 per unit.
August 18 15 units were purchased at $14 per unit.
August 29 12 units were sold.
What is the amount of the cost of goods sold for this sale?
a. $121.38.b. $106.00.c. $160.00.
Answer:
The correct answer is "$136.44"
Explanation:
According to the question,
Total units will be:
= [tex]10 \ unit+15 \ unit[/tex]
= [tex]25 \ unit[/tex]
Average cost will be:
= [tex]\frac{[(10\times 12)+(15\times 14)]}{29}[/tex]
= [tex]\frac{120+210}{29}[/tex]
= [tex]\frac{330}{29}[/tex]
= [tex]11.38[/tex] ($)
hence,
The cost of sale will be:
= [tex]Units \ sold\times Average \ cost[/tex]
= [tex]12\times 11.38[/tex]
= [tex]136.44[/tex] ($)
Rodgers Corporation agrees on January 1, 2019, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $12,000 at the beginning of each year. The lease does not transfer ownership or contain a bargain purchase op- tion, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Rodgers, journal entries on January 1, 2019 (commencement of the operating lease), and on December 31, 2019. Assume the implicit rate used by the lessor is 8%, and this is known to Rodgers. E21.17 003) Use the information for Rodgers Corporation and Packers, Inc. from BE21.16. Assume that for Packers, Inc., the lessor the collectibility of the lease payments is probable, and the fair value and cost of the equipment is $60,000. Prepare Packers' 2019 journal entries, assuming the company uses straight-line depreciation and no residual value.
Answer:
Rodgers Corporation and Packers, Inc.
Journal Entries:
1. Rodgers Corporation:
January 1, 2019:
Debit Right of Use Assets $33,400
Credit Lease Liability $33,400
To record the right of use asset and lease liability with the PV.
Debit Lease Liability $12,000
Credit Cash $12,000
To record the first payment of the lease liability on January 1, 2019
December 31, 2019:
Debit Amortization Expense $10,288
Debit Interest Expense $1,712
Credit Right of Use Assets $12,000
To record the annual amortization of the right of use assets.
Packers, Inc.
January 1, 2019:
Debit Cash $12,000
Credit Unearned Lease Revenue $12,000
To record unearned lease revenue.
December 31, 2019:
Debit Unearned Lease Revenue $12,000
Credit Lease Revenue $12,000
To record the earned lease revenue.
Debit Depreciation Expense $6,000
Credit Accumulated Depreciation- Leased Equipment $6,000
To record depreciation expense for the year.
Explanation:
a) Data and Calculations:
January 1, 2019
Annual lease payment at the beginning of each year = $12,000
The Present Value of annual lease payments = $33,400.
Implicit rate = 8%
To determine the PV of the lease payments:
N (# of periods) 3
I/Y (Interest per year) 8
PMT (Periodic Payment) 12000
FV (Future Value) 0
Results
PV = $33,399.18
Sum of all periodic payments $36,000.00
Total Interest $2,600.82
Schedule of Payments
Period PV PMT Interest FV
1 $33,400 $12,000.00 $1,712 $23,112
2 $23,112 $12,000.00 $889 $12,000
3 $12,000 $12,000.00 $0.00 $0.00
Analysis:
January 1, 2019:
Right of Use Assets $33,400 Lease Liability $33,400
Lease Liability $12,000 Cash $12,000
December 31, 2019:
Amortization Expense $10,288 Interest Expense $1,712 Right of Use Assets $12,000
Packers, Inc.
January 1, 2019:
Cash $12,000
Unearned Lease Revenue $12,000
December 31, 2019:
Unearned Lease Revenue $12,000
Lease Revenue $12,000
Depreciation Expense $6,000 ($60,000 ÷ 10)
Accumulated Depreciation- Leased Equipment $6,000
NetonBe makes sweaters, which traditionally involved the following steps: dyeing (i.e., into six different colors), knitting of the dyed fabric into three sizes each (small, medium, and large) and then distributing to the stores. As such, there were 18 different sweater color & size combinations in the end, each with a demand that is normally distributed with a mean of 1,000 and a standard deviation of 100. NetonBe has just developed a new system that allows them to knit a generic color sweater first, and then dyeing this generic sweater. As such, they only need to hold safety inventory for the three sizes, each with an average demand of 6,000. What would be the standard deviation in demand for each of these three generic sweaters?
a) Approximately 600
b) Approximately 300
c) Approximately 245
d) Approximately 60
Answer:
NetonBe
The standard deviation in demand for each of these three generic sweaters is:
a) Approximately 600
Explanation:
a) Data and Calculations:
Different sweater color & size combinations in the end = 18
Normally distributed demand mean of size = 1,000
Total demand of sizes = 18,000
Standard deviation of each size = 100
Standard deviation = 10% of mean (100/1,000 * 100)
Standard deviation for the total sizes = 1,800 (18,000 * 10%)
Average demand of new three sizes = 6,000
Total demand for the three new sizes = 18,000 (6,000 * 3)
Therefore, the standard deviation in demand for each of these three generic sweaters will be = 600 (6,000 * 10%)
Boats and Bait has 78,000 shares outstanding that sell for a price of $74 per share. The stock has a par value of $2 per share. The company's balance sheet shows capital surplus of $185,000 and retained earnings of $225,000. If the company declares a stock dividend of 17.5 percent, what is the new common stock value on the balance sheet?
Answer:
$183,300
Explanation:
The computation is shown below:
Value of common stock value on the balance sheet prior to the stock dividend is
= No of stock outstanding × Face value per share
= 78,000 × $2
= $156,000
Now
New shares to be issued is
= 78,000 × 0.175
= 13,650 shares
So,
Total shares outstanding after stock issue is
= 78,000 + 13,650
= 91,650 shares
Now the value of common stock after stock dividend is
= 91,650 × $2
= $183,300
Consider the following information for Evenflow Power Co.,
Debt: 5,500 5.5 percent coupon bonds outstanding, $1,000 par value, 19 years to maturity, selling for 104 percent of par; the bonds make semiannual payments.
Common stock: 137,500 shares outstanding, selling for $56 per share; the beta is 1.08.
Preferred stock: 18,500 shares of 5 percent preferred stock outstanding, currently selling for $106 per share.
Market: 7.5 percent market risk premium and 4 percent risk-free rate.
Assume the company's tax rate is 31 percent.
Required:Find the WACC.
Answer:
8.02 %
Explanation:
Weighted Average Cost of Capital (WACC) is the the cost required by holders of permanent source of capital pooled together.
WACC = Cost of Equity x Weight of Equity + Cost of Preferred Stock x Weight of Preferred Stock + Cost of Debt x Weight of Debt
where,
Cost of Equity (CAPM) = 4 % + 1.08 x 7.5 %
= 12.10 %
Cost of Preferred Stock = 5%
Cost of Debt :
PMT = ($1,000 x 5.5%) ÷ 2 = $27.50
N = 19 x 2 = 38
PV = $1,000 x 104 % = - $1,040
P/YR = 2
FV = $1,000
I/YR = ??
Using a Financial calculator the YTM (which is the cost of debt) is 5.17 %
But,
We use after tax cost of debt.
After tax cost of debt = 5.17 % x (1 - 0.31) = 3.57%
also
Total Market Value = $5,720,000 + $7,700,000 + $1,961,000 = $15,381,000
Weight of Equity = 0.50
Weight of Preferred Stock = 0.13
Weight of Debt = 0.37
therefore,
WACC = 12.10 % x 0.50 + 5% x 0.13 + 3.57% x 0.37
= 8.02 %
1) Please give an example of a market that comes close to being considered perfectly competitive.2) What does it mean when firms in a perfectly competitive market earn $0 in economic profits?
Answer:
the agricultural market e.g market for oranges
2. A firm earns zero economic profit when accounting profit equals implicit cost.
it means that they only earn accounting profit
Explanation:
A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.
In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.
Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.
In an agricultural market e.g. market for oranges, the goods are identical and the prices are the same.
A firm earns economic profit when accounting profit equals implicit cost. So, it only earns accounting profit
A game has a saddle point when the maximin payoff value equals the minimax payoff value. true or false
Answer:
True
Explanation:
To answer this question, I'll use the following illustration.
Minimax = <10,18,15>
Maximax = <8,4,10>
The payoff of the minimax is 10 (i.e. the smallest) and the payoff of the maximax is 10 (i.e. the largest)
Both payoffs are equal; hence, 10 is the saddle point.
Sardi Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 17,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows:
Direct materials $ 8.20
Direct labor 8.30
Variable manufacturing overhead 1.20
Fixed manufacturing overhead 4.30
Unit product cost $ 22.00
Assume that direct labor is a variable cost. Of the fixed manufacturing overhead, 70% is avoidable if the component were bought from the outside supplier. In addition, making the component uses 2 minutes on the machine that is the company's current constraint. If the component were bought, time would be freed up for use on another product that requires 4 minutes on this machine and that has a contribution margin of $7.00 per unit. When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component?
A) $20.71 per unit.
B) $22.00 per unit.
C) $25.50 per unit.
D) $24.21 per unit.
Gary is walking through his organization's buying process and has identified some additional steps that are needed in a B2B transaction. What would be included in those additional steps
Answer: order-routine specification
problem recognition
Explanation:
Business-to-business transactions occur when a business makes a transaction with another business. It should be noted that this takes place when the business is sourcing materials which will be used for their production process.
Since Gary is walking through his organization's buying process and has identified some additional steps that are needed in a B2B transaction, the additional steps should include the order-routine specification and the problem recognition.
Which capital budgeting technique is used on an exclusionary basis to prevent investing time and resources investigating using more complex techniques
Answer:
"Net Present Value" is the right approach.
Explanation:
A method used to determining or calculating the gaps between the current valuation of initial investment as well as the outputs of something like development or possible expenditure is termed as net present value.
The formula which is used to find the NPV is given below:
⇒ [tex]NPV=\frac{Cash \ flow}{(1+i)^t}-initial \ investment[/tex]
here,
i = Return requiredt = No. of periodsWhy is keeping a journal about what is good and bad regarding your summer or part-time work a good idea to help you choose a career path
The correct answer to this open question is the following.
Keeping a journal about what is good and bad regarding my summer or part-time work is a good idea to help me choose a career path because writing down what I like and what I dislike, I can get a pretty close idea of the things I enjoy and have more skills to perform, compared to the things I do not like or I have no abilities at all.
If a clearly identify my skills and abilities in the workplace during the summer, it will be easier for me to identify what could be the profession I love or at least, what I am attracted to.
As it is difficult to remember all the work experience by memory, writing the journal will help me to remember exact dates, specific activities that I enjoyed or were interesting, and what was not.
A multidomestic corporate-level strategy has ____ need for global integration and ____ need for local market responsiveness. Group of answer choices
Answer:
low; high
Explanation:
In the case of the multidomestic corporate level strategy there is less need for the integration that occurred globally and at the same time there is high requirement for the response made to local market
So as per the given situation, the blanks could be filled with the low and high options
ANd, the same is to be considered
The management of Neptune Inc. creates a definite plan of action that will surely create profits for the company. It allocates and sectionalizes its machinery and personnel. The main office is moved to a prime location that helps attract customers and facilitates competitive development. This plan of action helps Neptune Inc. retain its competitive advantage and has also grow as a company.
Which of the following terms does this scenario best illustrate?
a. Strategic tools
b. Functional strategy
c. Business unit strategy
d. Strategic management process
Answer:
d. Strategic management process
Explanation:
Strategic management process is the continuous improvement process and appraisals aimed at making a business more effective than its competitors.
It covers planning activities towards achievement of an organisations' present and future objectives.
This is exemplified by Neptune Inc. when it allocated and sectionalized its machinery and personnel, the main office was moved to a prime location that helps attract customers and facilitates competitive development.
The Bronco Corporation exchanged land for equipment. The land had a book value of $131,000 and a fair value of $172,000. Bronco received $21,000 from the owner of the equipment to complete the exchange which has commercial substance. Required: 1. What is the fair value of the equipment
Answer: $151,000
Explanation:
The fair value of the equipment is the amount that was less than the fair value of land by the amount of cash that the equipment owner had to pay to complete the transaction:
Fair value of equipment = Fair value of land - Cash paid by owner of equipment
= 172,000 - 21,000
= $151,000
Typical cash outflows of a project include all of the following except: A. the original investment B. depreciation expense. C. additional inventory required D. repairs and maintenance expenses E. all of the above are typical cash outflows.
Answer:
B. depreciation expense
Explanation:
Project cash flow can be regarded as how cash flows into as well as out of an organization with respect to a particular potential or existing project. Project cash flow encompass costs for such a project as well as the revenue.
conventional cash flow as regards a project is been structured typically as an initial outflow, which is then followed by inflows numbers over a particular period of time.
Typical cash outflows of a project include the following ;
✓the original investment
✓additional inventory required
✓repairs and maintenance expenses
While Amazon has become a very powerful e-commerce firm here in the US, Alibaba, the Chinese company is very powerful in many parts of the world. Go to Wikipedia and read about the different type of businesses that Alibaba operates. Then write a short outline of these businesses.
Answer:
Alibaba is a chinese company, one of the largest in the world by market capitalization.
While it mainly specializes in online retail (both business to consumer, and business to business), it is also involved in other business activities such as cloud computing, electronic payment, artificial intelligence services, and data science and analysis. In fact, Alibaba is considered not only one of the best retailers in the world, but also one of the best artificial intelligence and data-driven companies in the world.
A firm is evaluating the performance of two managers running a summer training program. One manager is in a large division with over 100 trainees, while the other is in a small division with only 15 trainees. What is one principle the firm should use in its evaluation
Answer:
Principle of equitable assessment
Explanation:
In simple words, the principle of equitable assessment refers to the concept which states that while comparing two subjects, the evaluation will be in such a way that the assessment will be fair to both the topics.
Hence, it should be made in such a way or should be made on those dimensions which consdier the differences between the two population.
The demand for cigarettes is highly inelastic. This suggests that the incidence of a higher tax on cigarettes will fall primarily on
Answer:
cigarette consumers.
Explanation:
Inelastic demand can be explained as a demand whereby the demand by buyers for a particular product ha little change compare to the change in price. Let say Athere is an increase in price by 20% , then demand for that product only experience decreases by only 1%, then we can say that demand is inelastic. For instance, when The demand for cigarettes is highly inelastic. This suggests that the incidence of a higher tax on cigarettes will fall primarily on cigarette consumers.
Melvin begins his retirement fund at age 30, depositing $1,000 per month until age 50. Cindy begins her retirement fund at age 20, depositing the same $1,000 per month amount until age 50. Both Melvin and Cindy earn 5 percent annual interest on their funds, and there are no tax considerations in this problem. Based on the provided information :____________
a) and assuming they retire at age 50, Cindy will have less than 50 percent more than Melvin
b) and assuming they retire at age 50. Cindy will have exactly 50 percent more than Melvin.
c) and assuming they both retire at age 60. Cindy will have less than Melvin.
d) the difference between the two will get larger with higher inflation
e) and assuming they retire at age 50. Cindy will have over 50 percent more than Melvin.
Answer: D. and assuming they retire at age 50, Cindy will have over 50% more than Melvin
Explanation:
Since Melvin begins his retirement fund at age 30, depositing $1,000 per month until age 50 while Cindy begins her retirement fund at age 20, depositing the same $1,000 per month amount until age 50 with a 5% annual interest on their funds, then we can deduce that if they retire at age 50, Cindy will have over 50% more than Melvin.
Therefore, the correct option is D.
Wealth Company has the following transactions for the month of November: Purchased materials on account for $300,000 Materials requisitioned for $75,000 Direct labor for the month was incurred (but not yet paid) of $50,000. Actual overhead for the month was $30,000. It has not been paid yet. (Charge to various payables.) Overhead is applied to production at the rate of 50% of direct labor. Jobs totaling $50,000 were transferred from Work-in-Process to Finished Goods. Jobs costing $34,000 were sold. Balances at the beginning of the month were: Materials $34,240 Work-in-Process 0 Finished Goods $12,000 What is the ending balance of Finished Goods
Answer:
Wealth Company
The ending balance of Finished Goods is:
= $28,000
Explanation:
a) Data and Calculations:
Raw materials $300,000 Accounts Payable $300,000
Work in Process $75,000 Raw materials $75,000
Work in Process $50,000 Payroll Payable $50,000
Manufacturing overhead $30,000 Overhead Payable $30,000
Work in Process $25,000 Manufacturing Overhead $25,000
Finished Goods $50,000 Work-in-Process $50,000
Cost of goods sold $34,000 Finished Goods $34,000
Balances at the beginning of the month were:
Materials $34,240
Work-in-Process 0
Finished Goods $12,000
Finished Goods $12,000
Work in process 50,000
Cost of goods (34,000)
Ending balance $28,000
On April 1, Holton Company borrows $100,000 from West Bank by signing a 6-month, 6%, interest-bearing note.
Prepare the necessary entries below associated with the note payable on the books of Holton Company.
(a) Prepare the entry on April 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made.
Answer:
A. Dr Cash $100,000
Cr Notes Payable $100,000
B. Dr Interest expense $1,500
Cr Interest Payable $1,500
Explanation:
a Preparation of the entry on April 1 when the note was issued.
Dr Cash $100,000
Cr Notes Payable $100,000
(To record note issued)
B. Preparation of any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements
Dr Interest expense $1,500
Cr Interest Payable $1,500
($100,000 x .06 x 3/12)
Design a plan that can be implemented in your life to become a higher level professional
Answer:
become a rapper
Explanation:
The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected:
Quarter Machine Hours Power Cost
1 20,000 $26,000
2 25,000 $38,000
3 30,000 $42,500
4 22,000 $37,000
5 21,000 $34,000
6 18,000 $29,000
7 24,000 $36,000
8 28,000 $40,000
Using the high and low points (i.e., the high-low method), compute a power cost formula. (Note: Round variable rate to three decimal places.)
Total power cost = $_______ + ( $________ x Number of machine hours )
Answer:
Total power cost= 1,250 + 1.375 * number of machine hours
Explanation:
Giving the following information:
Quarter Machine Hours Power Cost
1 20,000 $26,000
2 25,000 $38,000
3 30,000 $42,500
4 22,000 $37,000
5 21,000 $34,000
6 18,000 $29,000
7 24,000 $36,000
8 28,000 $40,000
To calculate the variable and fixed costs, we need to use the following formula:
Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)
Variable cost per unit= (42,500 - 26,000) - (30,000 - 18,000)
Variable cost per unit= $1.375
Fixed costs= Highest activity cost - (Variable cost per unit * HAU)
Fixed costs= 42,500 - (1.375*30,000)
Fixed costs= 1,250
Fixed costs= LAC - (Variable cost per unit* LAU)
Fixed costs= 26,000 - (1.375*18,000)
Fixed costs= 1,250
The following data are available for product no. CK74, manufactured and sold by Ruby Corporation:
Maximum capacity with present facilities 11,000 units
Total fixed cost (per period) $ 851,400
Variable cost per unit $ 120.00
Sales price per unit $ 186.00
Required:
The number of units of CK74 that Ruby must sell to break- even is:________.
a. 12,900.
b. 4,577.
c. 7,095.
d. 6,050.
Answer:
Break-even point in units= 12,900
Explanation:
Giving the following information:
Total fixed cost (per period) $ 851,400
Variable cost per unit $ 120.00
Sales price per unit $ 186.00
To calculate the break-even point, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 851,400 / (186 - 120)
Break-even point in units= 12,900
Answer: 12900
Explanation:
From the information given, we'll first calculate the contribution per unit which will be:
= Selling price per unit - variable cost per unit
= $186 - $120
= $ 66
Then, the break even sales in units will be: = Fixed cost/Contribution per unit
= 851,400 / 66
= 12,900
Therefore, the breakeven is 12900
Cavan Company prepared the following reconciliation between book income and taxable income for the current year ended December 31, year 1.
Pretax accounting income ...............................$1,000,000
Taxable income ...................................................(600,000)
Difference $ 400,000 Book-tax differences:
Interest on municipal income ...........................$ 100,000
Lower financial depreciation................................300,000
Total......................................................................$ 400,000
Cavan’s effective Federal and state income tax rate for year 1 is 30%. The depreciation difference will reverse equally over the next three years at enacted tax rates as follows.
Year Tax Rate Year 2 30% Year 3 25% Year 4 25%
In Cavan’s year 1 income statement, the deferred portion of its provision for income taxes should be: __________.
a. $120,000
b. $80,000
c. $100,000
d. $90,000
Answer:
b. $80,000
Explanation:
The computation of the deferred portion of its provision for income taxes should be given below:
= $300,000 ÷ 3 years
= $100,000
Now
= 30% of $100,000 + 25% of $100,000 + 25% of $100,000
= $30,000 + $25,000 + $25,000
= $80,000
Therefore the option b is correct
