A plant manager for a fiber optics cable manufacturing company knows that the remaining capital investment in several types of equipment is more closely approximated when the equipment is depreciated linearly by the SL method compared to a rapid write-off method like MACRS. Therefore, he keeps two sets of books, one for tax purposes (MACRS) and one for equipment-management purposes (SL). For an asset that has a first cost of $80,000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 3. Which method has the lower book value and by how much?
A plant manager for a fiber optics cable manufacturing
company knows that the remaining capital
investment in several types of equipment is more
closely approximated when the equipment is
linearly by the SL method compared to a
rapid write-off method like MACRS. Therefore, he
keeps two sets of books, one for tax purposes
(MACRS) and one for equipment-management
purposes (SL). For an asset that has a first cost of
$80,000, a depreciable life of 5 years, and a salvage
value equal to 25% of the first cost, determine
the difference in the book values shown in the two
sets of books at the end of year 3. Which method
has the lower book value and by how much?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
