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    Book and tax depreciation

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    Book vs. Tax (MACRS) Depreciation

    Elwood Inc. purchased computer equipment on March 1, 2010, for $36,000. The computer equipment has a useful life of 10 years and a salvage value of $3,000. For tax purposes, the MACRS class life is 5 years.

    a) Assuming that the company uses the straight-line method for book and tax purposes, what is the depreciation expense reported in 1) the financial statements for 2010 and 2) the tax return for 2010?

    b) Assuming that the company uses the double-declining balance method for both book and tax purposes, what is the depreciation expense reported in 1) the financial statements for 2010 and 2) the tax return for 2010?

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    Solution Preview

    a)1) The equipment is purchased on March 1. For book purpose the useful life is 10 years. The equipment is used for 10 months in 2010
    Depreciation = (36,000-3,000)/10 X 10/12 = ...

    Solution Summary

    The solution explains how to calculate the book and tax depreciation under straight line method and double declining balance method. This solution is 135 words in length and is presented in a step-by-step fashion for clarity.

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