Exercise 11-25 (Part Level Submission)

Kingbird Enterprises purchased a delivery truck on January 1, 2017, at a cost of $28,080. The truck has a useful life of 7 years with an estimated salvage value of $6,240. 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 optional MACRS tax rate tables are used to compute depreciation. In addition, assume that for 2017 and 2018 the company has revenues of $208,000 and operating expenses (excluding depreciation) of $135,200.

MACRS Depreciation Rates by Class of Property
Recovery Year		3-year (200% DB)		5-year (200% DB)		7-year (200% DB)		10-year (200% DB)		15-year (150% DB)		20-year (150% DB)
1		33.33		20.00		14.29		10.00		5.00		3.750
2		44.45		32.00		24.29		18.00		9.50		7.219
3		14.81*		19.20		17.49		14.40		8.55		6.677
4		7.41		11.52*		12.49		11.52		7.70		6.177
5				11.52		8.93*		9.22		6.93		5.713
6				5.76		8.92		7.37		6.23		5.285
7						8.93		6.55*		5.90*		4.888
8						4.46		6.55		5.90		4.522
9								6.56		5.91		4.462*
10								6.55		5.90		4.461
11								3.28		5.91		4.462
12										5.90		4.461
13										5.91		4.462
14										5.90		4.461
15										5.91		4.462
16										2.95		4.461
17												4.462
18												4.461
19												4.462
20												4.461
21												2.231
	*Switchover to straight-line depreciation.

1. Compute taxable income for 2017 and 2018

2. Determine the total depreciation to be taken over the useful life of the delivery truck for both book and tax purpose