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saveliy_v [14]
3 years ago
11

Assume a firm has earnings before depreciation and taxes of $620,000 and no depreciation. It is in a 40 percent tax bracket.

Business
1 answer:
kvasek [131]3 years ago
7 0

Answer:

a. Its cash flow is $372,000

b. Its cash flow is $620,000.

c. The cash flow benefit the depreciation provides is $248,000

Explanation:

a.

We have Earnings before taxes = $620,000 ( because there is no depreciation);

Tax expenses = 620,000 x 40% = $248,000;

=> Cash flow = Earnings before taxes - Tax expenses = 620,000 - 248,000 = $372,000.

b.

We have Earnings before taxes = EBIT - Depreciation = $620,000 - $620,000 = 0;

=> Tax expenses = 0; Earning after tax = 0;

=> Cash flow = Earning after tax + depreciation = 0 + 620,000 = $620,000.

c.

The cash flow benefit from depreciation = Depreciation expenses x tax rate = 620,000 x 40% = $248,000.

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2 years ago
Cairns owns 80 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date th
tensa zangetsu [6.8K]

Answer:

hello your question has a missing journal entry table attached below is the entry journal table completely filled

Explanation:

Amount of bonds acquired = 40% of original bond

i) Bonds payable = 40% * 1,300,000

                           = $520000

purchase price of bonds = $520000 * 96% ( FACE VALUE )

                                         = $499200

hence the annual amortization

(bonds payable - purchase price of bonds ) / 10 years - 2 years

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intra entity expense and income table is attached below

from the table

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v) investment in bonds

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the book value on bonds as at 1st January 2011

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Premium on bonds as at January 1st 2011

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amortization of premium as at January 1st 2011

=( ($65000) / 10 years ) * 2 years

= $13000

hence the controlling interest in bonds payable = $540800

vi) gains on retirement bonds

=  $540800 - $499200 = $41600

attached below is the journal entry on 31st December 2013

5 0
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