IMANET CMA Exam - Topic 2 Question 12 Discussion

Actual exam question for IMANET's CMA exam

Question #: 12
Topic #: 2

[All CMA Questions]

Calamity Cauliflower Corporation is considering undertaking a capital project. The company would have to commit $24,000 of working capital in addition to an immediate outlay of $160,000 for new equipment. The project is expected to generate $100,000 of annual income for 10 years. At the end of that time, the new equipment, witch will be depreciated on a straight-line basis, is expected to have a salvage value of $10,000. The existing equipment that would be sold to make room for the project has a histoncal cost of $220,000 and accumulated depreciation of $208,000. It has an estimated remaining useful life of 2 years and the remaining book value is being depreciated on a straight-line basis. A scrap dealer has agreed to buy it for $8,000. The company's effective tax rate is 40%. Calamity Cauliflower's tax benefit arising from the disposal of the old equipment is

A$8,000

B$4,800

C$3,200

D$1,600

Show Suggested Answer

Suggested Answer: D

A firm enjoys a tax benefit upon recognizing a loss on disposal because the loss reduces book income. The old equipments book value is historical cost ($220,000) minus accumulated depreciation ($208,000).

The tax benefit is the accrual-basis loss on the disposal times the effective tax rate.

by Tiffiny at May 06, 2022, 09:50 PM

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Janessa

4 months ago

$3,200? That seems low for a tax benefit.

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Kathrine

4 months ago

I agree with the $4,800 option, seems right!

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Justine

5 months ago

Wait, how does the tax rate affect the scrap value?

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Pamella

5 months ago

I think it’s definitely more than $8,000.

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Laurel

5 months ago

The tax benefit from selling the old equipment is based on the book value.

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Leonida

5 months ago

I feel like I might be overthinking this. If the old equipment has a book value of $12,000, then selling it for $8,000 should definitely have some tax implications, right?

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Roselle

5 months ago

This question seems similar to one we practiced where we had to determine the tax implications of selling an asset. I think the tax benefit is based on the difference between the sale price and the book value.

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Kimbery

5 months ago

I remember we talked about how to calculate the tax benefit from selling old equipment, but I'm not sure if I got the formula right.

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Denny

5 months ago

I think the accumulated depreciation plays a big role here, but I can't recall how to factor that into the tax benefit calculation.

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Mari

5 months ago

Based on my understanding, the Symantec Management Agent would query the Software Management Framework to obtain the list of package download locations. The Software Management Framework is the central component that manages software distribution.

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Yuriko

5 months ago

Hmm, I'm a bit confused about this one. I know PPP has some protocols, but I'm not sure which ones are part of the agreement specifically.

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Rebbecca

5 months ago

Hmm, I'm a little unsure about this one. I know it has something to do with software development, but I can't remember the exact acronym.

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Shaun

5 months ago

I'm leaning towards high customer service as the best option. It seems like having good service would mean less stock.

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Ty

5 months ago

I've got this! Royalty costs on manufacturing inputs would increase the prime cost, but reduce the overall factory cost of production.

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Sylvia

5 months ago

Hmm, I'm not entirely sure about this one. I'll need to think it through carefully to make sure I understand the different ways a mobile device can supply data.

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