Understanding Healthcare Financial Management

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Understanding Healthcare Financial Management Name: Institution: Understanding Healthcare Financial Management Chapter 1: problem 5 Johnson family care Inc. uses straight-line method to calculate book depreciation at a tax rate of 40%. New clinic equipment cost $1,100,000 Cost of installation $22,000 Useful life 10 years Salvage value $75,000 The equipment falls into MACRS seven-year class a) What Annual Depreciation Expense Will Be Reported On The Income Statement For The Center? Depreciation expense = depreciable amount/useful life The depreciable amount = cost of the asset – salvage value The cost of the equipment $1,100,000 + $ 22,000 = $1,122,000 $1,122,000 - $75,000 10 = $104,700. 00 The annual depreciation expense reported on the income statement for the center is $104,700 b) What Annual Depreciation Expense Will Be Reported For Tax Purposes? The equipment falls into MACRS seven-year class The machines depreciable basis is $1,122,000 $(1,100,000 + 22,000) c) Suppose The Equipment Is Sold At The End Of The Fourth Year For $400,00, What Impact Would This Have On Taxes Paid By The Center Tax rate 40% Equipment sale price $400,000.00 MACRS book value at year 4 $347,820.00 The equipment will be sold at a higher price than the value of the item at the end of year four. The discrepancy implies that the center took too much depreciation and the taxing body will have to recover the excess tax benefit using the tax rate used by the organization. Therefore: $(400,000-347,820) = $52,180 40% of $52,180 is $20,872.00 Therefore, the IRA will recover $20,872 from the center. Chapter 2: Problem 1 ABC COMPANY AVERAGE PRIMARY CARE

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