Question

Longbow Lumber is purchasing a new horizontal resaw at a cost of​ $375,000. There is an additional​ $10,000 delivery and installation cost. The machine has a capital cost allowance​ (CCA) rate of​ 20%. What is the incremental undepreciated capital cost​ (UCC) for year​ 2?

A.) $346,500
B.) $385,000
c.) $337,500
d.) $192,500
e.) $375,000

Answer 1

To calculate the incremental undepreciated capital cost (UCC) for year 2, we need to determine the UCC for year 1 and then subtract the CCA for year 1 to find the UCC for year 2.

First, we need to calculate the initial UCC, which is the total cost of the asset:

Total cost = Cost of horizontal resaw + Delivery and installation cost

Total cost = $375,000 + $10,000

Total cost = $385,000

Next, we need to calculate the CCA for year 1:

CCA for year 1 = Initial UCC x CCA rate

CCA for year 1 = $385,000 x 20%

CCA for year 1 = $77,000

Now we can calculate the UCC for year 1:

UCC for year 1 = Initial UCC - CCA for year 1

UCC for year 1 = $385,000 - $77,000

UCC for year 1 = $308,000

Finally, we can calculate the UCC for year 2:

UCC for year 2 = UCC for year 1 - CCA for year 2

UCC for year 2 = $308,000 - ($385,000 x 20%)

UCC for year 2 = $308,000 - $77,000

UCC for year 2 = $231,000

Therefore, the answer is (d) $192,500.