Exercise 11-26 (Part Level Submission) Carla Inc. purchased computer equipment o

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Exercise 11-26 (Part Level Submission)

Carla Inc. purchased computer equipment on March 1, 2017, for $32,550. The computer equipment has a useful life of 10 years and a salvage value of $1,050. For tax purposes, the MACRS class life is 5 years.

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(b)

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Exercise 11-26 (Part Level Submission)

Carla Inc. purchased computer equipment on March 1, 2017, for $32,550. The computer equipment has a useful life of 10 years and a salvage value of $1,050. For tax purposes, the MACRS class life is 5 years.

(a)

Your answer is partially correct. Try again. Assuming that the company uses the straight-line method for book and tax purposes, what is the depreciation expense reported in (1) the financial statements for 2017 and (2) the tax return for 2017? (Round answer to 0 decimal places, e.g. 5,125.)
(1) Depreciation expense reported in the financial statements for 2017 $

(2) Depreciation expense the tax return for 2017 $

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(b)

Assuming that the company uses the double-declining-balance method for both book and tax purposes, what is the depreciation expense reported in (1) the financial statements for 2017 and (2) the tax return for 2017? (Round answers to 0 decimal places, e.g. 5,125.)
(1) Depreciation expense reported in the financial statements for 2017 $

(2) Depreciation expense the tax return for 2017 $

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Explanation / Answer

Purchase price = $32,550

Salvage Value = $1,050

Estimated life = 10 years

MACRS class life = 5 years

(a) (1) Depreciation expense reported in financial statements of 2017 = 32,550 - 1,050 / 10 = $3,150

(2) Depreciation expense reported in tax return 2017 = 32,550 - 1,050 / 5 = $6,300

(b) (1) Depreciation rate at straight line = 1/10 = 0.10 or 10%

Rate at double declining balance method = 10% * 2 = 20%

So, depreciation expense reported in financial statements = 32,550 * 20% = $6,510

(2) Depreciation Rate at straight line = 1/5 = 0.20 or 20%

Rate at double declining balance method = 20% * 2 = 40%

So, depreciation expense reported in tax return 2017 = 32,550 * 40% = $13,020

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