Johnson Family Care Inc. is a large ambulatory care center that provides comprehensive $24-$hour primary and specialty care to a large suburban population in Pennsylvania. The center recently purchased new clinical laboratory equipment for $$1\mathrm{.}1$ million and spent $$22,000$ to renovate a center room to accommodate the new equipment. The useful life of the equipment is estimated to be ten years, after which it can be sold for $$75,000.$ Johnson uses a straight$-$line method to calculate book depreciation and pays tax at a rate of $30$ percent. The equipment falls into the MACRS seven$-$year class.

a$.$ What annual depreciation expense will be reported on the income statement for the center?

b$.$ What annual depreciation expense will be reported for tax purposes?

ANSWER

a$.$

Capital cost

$$1,100,000$

Renovation cost

$$22,000$

Salvage value

$$75,000$

Useful life

$10$ years

Annual depreciation expense

$$102,500$

b$.$

Depreciable basis

$\backslash$table$[[,$Recovery,Depreciation$],[$ear$,$percentag,expense$]]$

Total

$0\%$

$$0$