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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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(Appendix 11.1) Auburn Company purchased an asset on January 1, Year 1, for $150,000. The asset has a MACRS life of 7 years. The residual value of the asset is $35,000. Calculate the depreciation expense for Year 1 and Year 2 using MACRS.

To determine

Compute the depreciation expense of Company A for the given years under MARCS.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

MACRS (Modified Accelerated Cost Recovery System):

Modified Accelerated Cost Recovery System is the prescribed method of depreciation that is used only for the purposes of tax. Under this method, the useful lives are classified in the form of recovery period and the internal revenue code sets that recovery period.

Compute the amount of depreciation expenses that is deductible under MACRS (7 Year property) for Year 1 as follows:

MACRS depreciationexpenses for Year 1}=Cost of equipment×MACRS %=$150,000×0

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