Infinity Production Acquired a New Machine at the Beginning of the Current

question 27

Multiple Choice

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $720,000 with no residual value expected. Infinity uses the straight-line method for financial reporting, assuming a 6-year useful life. The firm classifies the equipment as 5-year MACRS property for tax purposes using the following percentages. $\begin{array}{ll}\text { Year } & \text { MACRS }(\%) \\1 & 20.00 \% \\2 & 32.00 \\3 & 19.20 \\4 & 11.52 \\5 & 11.52 \\6 & 5.76\end{array}$
The company is subject to a 40% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below:
$\begin{array}{cc}&\text { Income before}\\&\text { Tax and}\\\text { Year } & \text { Depreciation } \\1 & \$ 360,000 \\2 & 410,000 \\3 & 480,000 \\4 & 700,000 \\5 & 820,000 \\6 & 950,000\end{array}$
What is Infinity's book income for year 1?

• A) $235,000
• B) $240,000
• C) $216,000
• D) $360,000

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