On January 6, 2016, Mayfield Company purchased a computer (cost, $20,000; expected life, four years; estimated salvage value, $4,000) and an eight-passenger van (cost, $38,000; estimated life, eight years; estimated salvage value, $8,000). For financial accounting purposes, the company has always used straight-line depreciation on all assets.
INSTRUCTIONS
1. Compute depreciation of the computer's cost for financial accounting purposes for 2016 and 2017.
2. Compute MACRS cost recovery of the computer's cost for income tax purposes for 2016 and 2017.
3. Compute depreciation of the van's cost for financial accounting purpose for 2016 and 2017.
4. Compute MACRS cost recovery of the van's cost for income tax purposes for 2016 and 2017.
Analyze: The owner suggests that to avoid duplication of work, the company should use the amount of cost recovery taken on the tax return for each asset as the amount to be used for depreciation in financial statements. Do you agree? Why?