On January 12, 2019, Mosley Company purchased a computer (cost, $6,500; expected life, five years; estimated salvage

Question:

On January 12, 2019, Mosley Company purchased a computer (cost, $6,500; expected life, five years; estimated salvage value, $500) and a lightweight van for delivery purposes (cost, $34,000; estimated life, seven years; estimated salvage value, $6,000). For financial accounting purposes, the company uses straight-line depreciation on all assets.

INSTRUCTIONS
1. Compute depreciation of the computer cost for financial accounting purposes for 2019 and 2020.
2. Compute cost recovery of the computer cost for income tax purposes for 2019 and 2020.
3. Compute depreciation of the van cost for financial accounting purposes for 2019 and 2020.
4. Compute cost recovery of the van cost for income tax purposes for 2019 and 2020.
Analyze: What objectives or principles account for the differences between the financial accounting depreciation rules and the income tax cost recovery rules?

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...