=+A7-3 Effect ofdepreciation on net income Cowboy Construction Co. specializes in building replicas of historic houses. Tom Askew, presi¬

dent ofCowboy Construction, is considering the purchase ofvarious items of equipment on July 1, 2006, for $150,000. The equipment would have a useful life offive years and no residual value. In the past, all equipment has been leased. For tax purposes, Tom is considering depre¬

ciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. He asked for your advice as to which method to use for tax purposes.

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