Longbow Lumber is purchasing a new horizontal resaw at a cost of $375,000.There is an additional $10,000 delivery and installation cost.The machine has a capital cost allowance (CCA)rate of 20%.What is the incremental undepreciated capital cost (UCC)for year 2?

Question

Quizplus · Accepted Answer

To calculate the incremental UCC for year 2, we need to know the CCA for year 1, which is calculated as follows:

CCA for year 1 = (Initial cost + Delivery and installation cost) x CCA rate
= ($375,000 + $10,000) x 20%
= $77,000

Therefore, the undepreciated capital cost (UCC) at the end of year 1 is:

UCC year 1 = (Initial cost + Delivery and installation cost) - CCA for year 1
= $375,000 + $10,000 - $77,000
= $308,000

To find the incremental UCC for year 2, we need to subtract the CCA for year 2 from the UCC at the end of year 1:

CCA for year 2 = UCC year 1 x CCA rate
= $308,000 x 20%
= $61,600

Incremental UCC for year 2 = UCC year 1 - CCA for year 2
= $308,000 - $61,600
= $246,400

Therefore, the answer is D) $346,500, which is not listed in the options. It seems that there has been an error in providing the answer choices.

Longbow Lumber Is Purchasing a New Horizontal Resaw at a Cost