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    Tax Depreciation for Motorola and Intel in year 2

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    Motorola and Intel are both in the semiconductor industry and compete in many of the same product sectors. But each uses a different depreciation method. Motorola's Year 2 10-K states the following:

    Depreciation is recorded principally using the declining -balance method based on the estimated useful lives of the assets (building and building and equipment, 5-50 years; machinery and equipment, 2-12 years).

    So, Motorola is using accelerated depreciation for most of its assets. By contrast, Intel's Year 2 report says:

    Depreciation is computed for financial reporting purposes principally by use of the straight-line method over the following estimated useful lives: machinery and equipment, 2 to 4 years; land and buildings, 4 to 45 years.

    The following table gives several key financial statement figures for each company from its respective Year 2 10-k and excerpts from its income tax footnote:

    See spreadsheet

    1. Using the information provided and the analytical techniques, determine the tax depreciation for Motorola and Intel for Year 2.
    2. Adjust each firm's pre-tax income to reflect the same depreciation method and useful lives used for tax purposes.
    3. Explain why the adjusted numbers provide a better basis for comparing the operating performance of the two companies.

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    QUESTION

    Motorola and Intel are both in the semiconductor industry and compete in many of the same product sectors. But each uses a different depreciation method. Motorola's Year 2 10-K states the following:

    Depreciation is recorded principally using the declining -balance method ...

    Solution Summary

    Tax Depreciation for Motorola and Intel in year 2 is examined.

    $2.19

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