Problem 1. During 2014, P & P Products purchased $20,000 of computer equipment with an estimated life of 5 years and no salvage value. P & P Products uses the straight-line method to depreciate its computer equipment for book purposes and uses MACRS depreciation for tax purposes. This creates a $5,000 difference in depreciation. P & P Products erroneously recorded the computers as equipment expense. P&P Products’ tax rate is 40%.
Required: a. Make the correcting entry. b. Calculate the deferred tax effect due to the depreciation of equipment
Problem 2. Assume that P & P wants to build a new warehouse. The CFO has stated that the building will cost $1.5 million. She has asked you to determine the dollar amount of bonds that P & P would have to issue to cover this cost, assuming that the bonds would have a stated interest rate of 8 percent, a 10-year term and the market rate is currently 6 percent.