(CCA versus amortization, LO 3, 5) On January 3, 2004 Goglin Inc. (Goglin) purchased new equipment to process fresh fruit into jams and jellies for retail sale. The equipment cost $25,000, fully installed, and the amount was capitalized for accounting and tax purposes. Goglin’s equipment is classified as class 43, which has a CCA rate of 30% declining balance. Goglin’s year end is December 31.

Required:

a. What is the maximum amount of CCA that could be claimed for tax purposes in 2004? Explain.

b. What is the maximum amount of CCA that could be claimed for tax purposes in 2005? Explain.

c. What is the maximum amount of amortization for financial reporting purposes that could be expensed in 2004?

d. If Goglin decides to amortize the equipment on a straight-line basis over 15 years, what would be the maximum amount of amortization that could be expensed in 2004?

e. How does the useful life estimated by Goglin’s management affect the amount of CCA that can be claimed? Explain.

f. Why are the amounts calculated in

(a) and

(c) likely different? Explain.