Grinder Enterprises purchased machinery on January 1, 2007, at a cost of $270,000. The machinery has an estimated useful life of eight years and $6,000 residual value. Grinder’s income, excluding depreciation and income taxes, for 2007 was $750,000. If Grinder has a 40% income tax rate, determine the amount of income tax expense and net income it will report, using the:
b.double declining balance method
6.On January 1, 2007, Brown Company acquired machinery at a cost of $132,000 including sales tax and installation charges. Management estimated the machinery would have a useful life of 6 years and a residual value of about $12,000. The company operates on a calendar year basis and eventually sold this machinery for $8,000 scrap on December 31, 2009.
a.What depreciation method did this company use if the book value of the machinery on the December 31, 2007 balance sheet was $112,000? Carefully and neatly prepare a schedule to prove your conclusion.
b.If the company uses the straight-line method, what will be the amount of depreciation expense for 2008
c.If the company uses the straight-line method, what amount of gain or loss will the company experience at disposal on December 31, 2009? Carefully and neatly prepare a schedule to prove your answer.
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