1. Suppose that Sandstone industries purchased PPE at the beginning of the fiscal year 2018 for $400,000. It has a useful life of 5 years and no residual value. Sandstone records depreciation for financial reporting purposes under the straight-line method and for tax purposes under the MACRS.

MACRS requires that of this type be depreciated as follows:

Year 1 33%

Year 2 45%

Year 3 15%

Year 4 7%

The tax rate is 21%. This is the only accounting difference between financial reporting purposes and tax reporting purposes.

Is taxable income higher or lower than pre-tax accounting income in year 1 of owning this asset?