Exercise 11-26 Splish Inc. purchased computer equipment on March 1, 2017, for $3

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Exercise 11-26

Splish Inc. purchased computer equipment on March 1, 2017, for $37,510. The computer equipment has a useful life of 10 years and a salvage value of $1,210. For tax purposes, the MACRS class life is 5 years.

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Exercise 11-26

Splish Inc. purchased computer equipment on March 1, 2017, for $37,510. The computer equipment has a useful life of 10 years and a salvage value of $1,210. For tax purposes, the MACRS class life is 5 years.

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 $

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

Cost of Equipment = $37,510

Salvage Value = 1,210

Useful life = 10 years, MACRS class life = 5 years

1. (a)Depreciation expense reported in the financial statements of 2017 = 37,510-1,210 / 10 = $3,630

(b)Depreciation expense reported in tax return 2017 = 37,510 - 1,210 / 5 = $7,260

2. (a) Depreciation rate using straight line method for a life of 10 years = 1/10 = 0.10 or 10%

Depreciation rate under double declining balance method = 10% * 2 = 20%

Depreciation expense reported in the financial statements of 2017 = 37,510 * 20% = $7,502

(b) Depreciation rate for tax return under MACRS = 1/5 = 0.20 or 20%

Depreciation rate under double declining method = 20% * 2 = 40%

Depreciation expense reported in tax return 2017 = 37,510 * 40% = $15,004

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