Book vs. Tax (MACRS Depreciation) Annunzio Enterprises purchased a delivery truck on January 1, 2010, at a

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Book vs. Tax (MACRS Depreciation) Annunzio Enterprises purchased a delivery truck on January 1, 2010, at a cost of $41,000. The truck has a useful life of 7 years with an estimated salvage value of $6,000. The straight-line method is used for book purposes. For tax purposes the truck, having an MACRS class life of 7 years, is classified as 5-year property; the MACRS tax rate tables are used to compute depreciation. In addition, assume that for 2010 and 2011 the company has revenues of $200,000 and operating expenses (excluding depreciation) of $130,000.

(a) Prepare income statements for 2010 and 2011. (The final amount reported on the income statement should be income before income taxes.)

(b) Compute taxable income for 2010 and 2011.

(c) Determine the total depreciation to be taken over the useful life of the delivery truck for both book and tax purposes.

(d) Explain why depreciation for book and tax purposes will generally be different over the useful life of a depreciable asset.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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Intermediate Accounting

ISBN: 978-0470423684

13th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield

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