Blier Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. The income tax expense in year 2 is:
A)$17,500
B)$3,500
C)$35,000
D)$21,000

Question

Blier Corporation has provided the following information concerning a capital budgeting project:  The company uses straight-line depreciation on all equipment. The income tax expense in year 2 is:
A)$17,500 
B)$3,500 
C)$35,000 
D)$21,000

Quizplus · Accepted Answer

To calculate the income tax expense in year 2, we first need to calculate the taxable income for year 2. We can do this by subtracting the depreciation expense for year 2 from the operating income for year 2:

Operating income for year 2: $50,000
Depreciation expense for year 2: $15,000
Taxable income for year 2: $35,000

Next, we need to calculate the income tax expense using the marginal tax rate of 60%:

Income tax expense for year 2: $35,000 x 60% = $21,000

Therefore, the best choice is D, with an income tax expense of $21,000.

Blier Corporation Has Provided the Following Information Concerning a Capital