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A company owned a plot of land that appeared in its fixed assets at its acquisition cost in 1910, which was $10,000. The land was not used. In 1989, the local boys club asked the company to donate the land as the site for a new recreation building. The donation would be a tax deduction of $110,000, which was the current appraised value. The company's tax rate was 40 percent. Some argued that the company would be better off to donate the land than to keep it or to sell it for $110,000. Assume that, other than the land, the company's taxable income as well as its accounting income before taxes was $10,000,000.

Required:

How would the company's aftertax cash inflow be affected if (a)it donated the land or (b) it sold the land for $110,000? How would its net income be affected?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9405820

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