This depreciation method was brought about by the Tax Reform Act of 1986 a. Straight-Line O b. Modified Accelerated Cost Recovery System (MACRS) O c. Declining Balance d. Accelerated Cost Recovery System (ACRS)
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- Many companies use an accelerated depreciation method because: A. It is required by the tax code.B. It is required by financial reporting rules.C. It yields larger depreciation expense in the early years of an asset's life.D. It yields a higher income in the early years of the asset's useful life.E. The results are identical to straight-line depreciation.As explained in this chapter, accounting theory allows firms to choose a depreciation method from several equally acceptable alternatives to allocate the cost of a long-term asset to expense over the useful life of the asset. In practice, however, most organizations use the straight-line method of depreciation for financial statement presentation and the Modified Accelerated Cost Recovery System (MACRS) for tax reporting purposes because the Internal Revenue Code allows firms to use an accelerated depreciation method on their tax returns, instead of the straight-line method they report under GAAP. Discuss why a company would choose to use straight-line deprecation for financial reporting purposes and an accelerated method for tax purposes. Speculate on why the tax code might allow firms to accelerate depreciation for investments in productive resources.Using the straight-line method of depreciation for reporting purposes and accelerateddepreciation for tax purposes would most likely result in a:A . valuation allowance.B . deferred tax asset.C . temporary diff erence.
- Which of these statements about depreciation is true? a. MACRS depreciation incorporates only declining balance depreciation in itscomputations for all assets.b. Straight line depreciation is actually not straight at all, but is based on anexponential decay function.c. For twenty-first century assets in the U.S., MACRS depreciation and taxdepreciation have the same meaning.d. Gains tax is paid on any revenue that exceeds the year's depreciation allowance.Which of the following statements are FALSE? a. MACRS is the only depreciation method approved by the IRS for computing income-tax liability and it is also the most commonly used method in the United States for financial reporting. b. MACRS stands for Modified Annuitized Cost Recovery System. c. MACRS-GDS is based on double declining balance switching to straightline depreciation. d. MACRS-ADS is based on straight-line depreciation.Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed.
- For each statement in parts a to d, give a short answer or indicate True orFalse. a. Which of the following is a cash flow: (1) depreciation, (2) loan interest paid, and/or (3) income tax. b. We know that depreciation law has changed dramatically since 1950; however, tax law has not changed. (T or F). c. Depreciation method affects taxes owed. (T or F). d. In an alternative evaluation, the inclusion of taxes will change the amount of the measures of merit (e.g., PW or AW), but will not change which alternative is selected as most desirable. (T or F).Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed. The answer A is wrong
- If a company is seeking to minimize its income tax expense, the depreciation method it would most likely select would be the: units of production method straight-line method single-and-a-half depreciation method double-declining balance methodWhich of the following usually results in an increase in a deferred tax asset? A) Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting. B) Prepaid insurance. C) Subscriptions delivered for which customers had paid in advance. D) None of these answer choices are correct.1. When the useful life of an asset is more accurately defined in terms of how much it is used rather than the passage of time, the _____ method is used to calculate depreciation. A. straight-line B. sum-of-the-years' digits C. units-of-production D. declining-balance 2.The name given to tax rules for getting back or recovering through depreciation deductions the cost of property used in a trade or business, or to produce income is known as the _____ Accelerated Cost Recovery System. A. Municipal B. Modified C. Minimum D. Maximum
