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

question 8

Essay

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.
$\begin{array}{ll}\underline{\text { Year} } &\underline{ \text { MACRS }(\%) }\\1 & 20.00 \% \\2 & 32.00 \\3 & 19.20 \\4 & 11.52 \\5 & 11.52 \\6 & 5.76\end{array}$

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:
$$\begin{array} { | l | c | } \hline \text { Year } & \begin{array} { c } \text { Income before } \\\text { Tax and } \\\text { Depreciation }\end{array} \\ \hline 1 & \$ 400,000 \\\hline 2 & 450,000 \\\hline 3 & 520,000 \\\hline 4 & 700,000 \\\hline 5 & 820,000 \\\hline6&950\\\hline\end{array}$$
Complete the following table for Infinity Production.
$$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Book } \\\text { depreciation }\end{array} & \begin{array} { c } \text { Tax } \\\text { depreciation }\end{array} & \begin{array} { c } \text { Book } \\\text { income } \\\text { before tax }\end{array} & \begin{array} { c } \text { Taxable } \\\text { income } \\\text { before tax }\end{array} & \begin{array} { c } \text { Income tax } \\\text { expense }\end{array} & \begin{array} { c } \text { Deferred }\\\text { tax liability } \\\text { balance }\end{array} \\\hline 1 & & & & & & \\\hline 2 & & & & & & \\\hline 3 & & & & & & \\\hline 4 & & & & & & \\\hline 5 & & & & & & \\\hline 6 & & & & & & \\\hline\end{array}$$

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Definitions:

Fluid Intelligence

The ability to think logically and solve problems in novel situations, independent of acquired knowledge.

Crystallized Intelligence

Refers to the accumulation of knowledge, skills, and experiences that one can draw upon to solve problems.

Cribs

Beds with high sides for infants or young children, designed to ensure the child's safety while sleeping.

Preventable

Capable of being stopped or avoided through proactive measures or interventions.