ACC 497 Week 4 Assignment Help | University Of Phoenix
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ACC 497 Week 4 Assignment Help | University Of Phoenix
Week 4 - Income Tax The implication of Capital Investment Decisions Paper
The Whitley
Corporation's year-end is December 31, 2013. It is now October 1, 2013. The
Whitley's'management team is taking a look at the prior nine months and
attempting to make some short-term strategy decisions.
Whitley has experienced
steady growth over the five preceding years. The result has been a steadily
increasing EPS. Last year, Whitley reported an EPS of 1.95.
This year, owing to a
mild recession, Whitley's sales have fallen off. Management is looking for
strategies that can improve the appearance of financial statements. At the
same time, there is a need for new equipment in the plant. Despite the
recession, Whitley has enough cash to make the purchase.
Based on the year's
performance to date and extrapolation of the results to year-end, management
feels that the pretax financial accounting income for the year will be
$200,000. Transactions from prior years have resulted in a deferred tax asset
of $15,000 and a deferred tax liability of $70,000 at the beginning of 2013.
The temporary difference of $37,500 that resulted in the deferred tax asset is
expected to completely reverse by the end of 2013. The deferred tax liability
resulted totally from temporary depreciation differences. There will be a
pretax reversal of $42,500 in this temporary difference during 2013.
Based on the currently
enacted tax law, the purchase of the equipment will result in a future taxable
amount of $50,000. Whitley management feels that it can wait four to six months
to purchase the machine. Whitley's tax rate is 40 percent.
Write a response of 700 to 1,050 words to the following:
- Determine the projected amount of
income tax expense that would be reported if Whitley waits until next year
to purchase the equipment.
- Determine the projected amount of
income tax expense that would be reported if Whitley purchases the
equipment in 2013.
- Explain why Whitley
should/shouldn't wait to purchase the equipment. Your answer should take
into consideration the expected financial statement effects, as well as
the effect on EPS. Support your conclusions with pro forma data. The
number of shares that Whitley will use to calculate EPS is 55,500.
- Determine the ethical considerations
of this case.
Format your
submission consistent with APA guidelines.
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