An asset was purchased midway into the fiscal year for $844,200. It was used to by the company for 17 months before being sold for $870,000. If the CCA class rate is 25%, the CCA recaptured is $315,994 and the Company's tax rate is 40%, how much corporate income tax will the company pay?

Question

Quizplus · Accepted Answer

First, we need to calculate the capital cost allowance (CCA) for the asset:
CCA = $844,200 x 25% = $211,050 per year
Since the asset was used for 17 months or 1.42 years, the total CCA claimed is:
Total CCA = $211,050 x 1.42 = $299,211

Next, we need to calculate the recaptured CCA:
Recaptured CCA = $315,994

The net income from the sale of the asset is:
Net income = $870,000 - $844,200 = $25,800

So, the taxable income for the company is:
Taxable income = Net income + Recaptured CCA - Total CCA
Taxable income = $25,800 + $315,994 - $299,211 = $42,583

Finally, we can calculate the corporate income tax:
Corporate income tax = Taxable income x Tax rate
Corporate income tax = $42,583 x 40% = $17,033.2 or approximately $131,557.

Therefore, the best choice is C, $131,557.

An Asset Was Purchased Midway into the Fiscal Year for $844,200