Depreciation Book Revenue Accelerate Less: Expenses Delay Tax Delay Accelerate Resulting In: Lower Taxable Income Higher Book Income Rule Book: Internal Revenue Code GAAP Recall from your accounting course that there are two methods (among others) of calculating depreciation: (1) Straight-Line (Book Income) (2) Accelerated Depreciation (Tax Return) such as Double Declining Balance at Twice the Straight-Line Rate (2) Accelerated Depreciation (Tax Return) such as Double Declining Balance at Twice the Straight-Line Rate Formula for Calculating Straight-Line Depreciation Cost of Fixed Asset (Other than Land) - Estimated Salvage Value Estimated Useful Life Given the following facts calculate depreciation expense for Year 1 and Year 2 (show your work just putting answer results in fewer points): Cost of Fixed Asset: $60,000 Page 2/2 Estimated Salvage Value: $10,000 Estimated Useful Life: 5 years (a) Required Calculate depreciation in year 1and year 2. The company has adopted straight Line depreciation for financial reporting purposes._ (b) Required Assuming this was the company's only fixed asset prepare the year end adjusting journal entry (AJE) for years 1 and 2, respectively. (c) Required What is unique concerning the depreciation AJE? Hint: This is the reason that depreciation is an adjustment to the operating section of the Statement of Cash Flows. (d) Required Assuming the same facts for the cost of the Fixed Asset, Estimated Salvage Value and Useful Life as listed in straight line problem perform the follow calculation. The company has adopted depreciation of double declining balance at twice the straight-line rate for tax reporting purposes. Using the formula listed below calculate depreciation for years 1 and 2, using this method of depreciation. (1) Calculate the straight-line rate. 1/estimated useful life (1) Calculate the straight-line rate. 1/estimated useful life Multiple this rate by 2. (2) Determine the book value. If you recall book value is (cost - accumulated depreciation). Calculate year 1 depreciation. (3) For year 2 take the book value and multiple by depreciation rate (4) Stop depreciation when book value has reached salvage value