1. In April of the current year, Blue Corporation purchased an asset to be used in its manufacturing operations for $100,000. Blue’s management expects the asset to ratably provide valuable services in the production process for eight years and have a salvage value of $12,000. The asset is a five-year asset for tax purposes.

Blue has adopted the half-year convention for book purposes in the year of acquisition and disposition; Blue uses MACRS for tax purposes. Neither § 179 nor bonus depreciation (additional first-year depreciation) is used for the asset.

a. Compute the depreciation expense in the year of acquisition for book and tax purposes.

b. Identify the book-tax difference related to the depreciation expense in the year of acquisition.