Question

Equipment is purchased for $ 250,000 in year 0 and is expected to sell for $ 25,000 after 5-year use. Suppose the company estimates equipment income and expenses for the following first year of operation: Income $ 600,000, Expenses $ 260,000, Depreciation $ 45,000. If the company pays taxes at a rate of 35%, what is the amount of taxes to pay during the first year?

Answer 1

First, we need to find earnings before taxes.

Earnings before taxes = Income - Expenses - Depreciation

=  $ 600,000 - $ 260,000 - $ 45,000

= $ 295,000

Taxes = Earnings before tax * Tax rate

= $295,000 * 35%

= $103,250

Income	600,000
Less: Expenses	260,000
Less: Depreciation	45,000
Earnings before tax	295,000
Less: Taxes at 35%	103,250
Net Income	191,750