Computation of Book and Tax Depreciation
Midwest States Manufacturing purchased factory equipment on March 15,2007. The equipment will be depreciated for financial purposes over its estimated useful life, counting the year of acquisition as a half year. The company accountant revealed the following information regarding this machine:
|
Purchase price |
$75,000 |
|
Residual value |
$9,000 |
|
Estimated useful life |
10 years |
1. What amount should Midwest States Manufacturing record for depreciation expense for 2008 using the (a) double declining balance method and (b) sum of the years’ digits method?
2. Assuming the equipment is classified as 7 year property under the modified accelerated cost recovery system (MACRS), what amount should Midwest States Manufacturing deduct for depreciation on its tax return in 2008?