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On January 1, 2017, Northeast USA Transportation Company purchased a used aircraft at a cost of...

Question:

On January 1, 2017, Northeast USA Transportation Company purchased a used aircraft at a cost of $55,000,000. Northeast USA ex

On January 1, 2017, Northeast USA Transportation Company purchased a used aircraft at a cost of $55,000,000. Northeast USA expects the plane to remain useful for five years (6,500,000 miles) and to have a residual value of $5,000,000. Northeast USA expects to fly the plane 850,000 miles the first year, 1,300,000 miles each year during the second third, and fourth years, and 1,750,000 miles the last year. (Click the icon to view the first year depreciation amounts under each method.) Read the requirements 1. Which depreciation method offers the highest tax advantage for the first year? Describe the nature of the tax advantage. The double-declining-balance method offers the tax advantage for the first year of the asset's use. The advantage results from the greater amount of depreciation (versus the other methods) in the first year. This method also produces the fastest tax deductions and conserves cash that the taxpayer can invest to earn more income. 2. How much income tax will Northeast USA save for the first year of the airplane's use under the method you just selected places. Round your final answers to the nearest whole dollar.) jome tax rate is 28%. Ignore any earnings from investing the extra cash. (Round the depreciation rates to two decimal Х Reference Compute the tax savings: Method Less: Straight-line depreciation Excess depreciation tax deduction (a) straight-line (b) units-of-production (c) double-declining-balance First year depreciation $ 10,000,000 $ 6,536,500 $ 22,000,000 28% Income tax rate Income tax savings for first year Print Done

Answers

2.

Double Declining Depreciation $ 22,000,000
Less Straight line Depreciation $ 10,000,000
Excess Depreciation tax deduction $ 12,000,000
Income tax rate 28%
Income tax savings for first year $    3,360,000

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