Question

1. Calculate the double declining balance deprecation schedule for a $2,000 item that will last five years. What is the estimated salvage value?

2. Calculate the differences in total taxes paid if a $10,000 profit (that is disbursed to the shareholders) is realized for an S Corp versus C Corp. assume a 20% personal tax rate and a 20% corporate tax rate.

Answer 1

1

Rate of depreciation per year=	2/useful life *100
useful life (in years)	5
Rate of depreciation per year=	40%

Year	Gross block	Net book value opening	Ac Dep opening	Dep expense	Ac Dep closing	Net book value closing
	a	b	c	d	e=c+d	f=a-e
1	2,000.00	2,000.00	-	800.00	800.00	1,200.00
2	2,000.00	1,200.00	800.00	480.00	1,280.00	720.00
3	2,000.00	720.00	1,280.00	288.00	1,568.00	432.00
4	2,000.00	432.00	1,568.00	172.80	1,740.80	259.20
5	2,000.00	259.20	1,740.80	103.68	1,844.48	155.52

Answer is 155.52

2

Difference = C corp total taxes - S corp taxes = 3,600 - 2,000 = 1,600

Particulars	Amount
C corp income	10,000
Corp tax	2,000
Net disbursement	8,000
Personal tax	1,600
Amount left	6,400
Total taxes	3,600

S corp taxes:

Particulars	Amount
C corp income	10,000
Corp tax	-
Net disbursement	10,000
Personal tax	2,000
Amount left	8,000
Total taxes	2,000