Effect of depreciation on net income Einstein Construction Co. specializes in building replicas of historic houses. Bree Andrus. president of Einstein Construction, is considering the purchase of various items of equipment on July 1. 20Y2. for $300,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Bee is considenng depreciating the equipment by the straight-line method. She discussed the matter with her CPA and learned that although the straight-line method could be elected, it was to her advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. She asked for your advice as to which method to use for tax purposes. What factors would you present for Bree’s consideration in the selection of a depreciation method?

BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

Solutions

Chapter
Section
Chapter 7, Problem 7.3.3C
Textbook Problem

Effect of depreciation on net income

Einstein Construction Co. specializes in building replicas of historic houses. Bree Andrus. president of Einstein Construction, is considering the purchase of various items of equipment on July 1. 20Y2. for $300,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Bee is considenng depreciating the equipment by the straight-line method. She discussed the matter with her CPA and learned that although the straight-line method could be elected, it was to her advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. She asked for your advice as to which method to use for tax purposes.
What factors would you present for Bree’s consideration in the selection of a depreciation method?

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Chapter 7 Solutions

Survey of Accounting (Accounting I)
Ch. 7 - a. Does the recognition of depreciation in the...Ch. 7 - Backyard Company purchased a machine that has a...Ch. 7 - Is it necessary for a business to use the same...Ch. 7 - Distinguish between the accounting for capital...Ch. 7 - Imnediately after a used truck is acquired, a new...Ch. 7 - Classify each of the following expenditures as cit...Ch. 7 - a. Under what conditions is the use of an...Ch. 7 - For some of the fixed assets of a business, the...Ch. 7 - How is depletion determined?Ch. 7 - a. Over what period of time should the cost of a...Ch. 7 - Costs of acquiring fixed assets Summer Wilks owns...Ch. 7 - Determine cost of land Snowy Ridges Ski Co. has...Ch. 7 - Determine cost of land Four Corners Delivery...Ch. 7 - Nature of depreciation Custer Construction Co....Ch. 7 - Straight-line depreciation rates Convert each of...Ch. 7 - Straight-line depreciation A refrigerator used by...Ch. 7 - Depreciation by two methods A Caterpillar tractor...Ch. 7 - Depreciation by two methods Equipment acquired at...Ch. 7 - Partial-year depreciation Sandblasting equipment...Ch. 7 - Capital and revenue expenditures About Time...Ch. 7 - Capital and revenue expenditures Dehra Bundy owns...Ch. 7 - Book value of fixed assets The following data (in...Ch. 7 - Sale of asset Equipment acquired on January 9,...Ch. 7 - Disposal of fixed asset Equipment acquired on...Ch. 7 - Recording depletion MacLean Mining Co. acquired...Ch. 7 - Recording amortization Dovetail Technologies...Ch. 7 - Goodwill impairment On January 1. 20Y3. The...Ch. 7 - Book value of fixed assets Apple. Inc., designs,...Ch. 7 - Balance sheet presentation List the errors you...Ch. 7 - Allocate payments and receipts to fixed asset...Ch. 7 - Allocate payments and receipts to fixed asset...Ch. 7 - Allocate payments and receipts to fixed asset...Ch. 7 - Compare three depreciation methods Bayside...Ch. 7 - Depreciation by two methods; partial years Knife...Ch. 7 - Depreciation by two methods; sale of fixed asset...Ch. 7 - Depreciation by two methods; sale of fixed asset...Ch. 7 - Depreciation by two methods; sale of fixed asset...Ch. 7 - Amortization and depletion entries Data related to...Ch. 7 - Amortization and depletion entries Data related to...Ch. 7 - Purchase of land Using the data from E7-3,...Ch. 7 - Comparing depreciation methods Use the data from...Ch. 7 - Comparing depreciation methods Use the data from...Ch. 7 - Disposal of fixed assets Using the data from P7-4,...Ch. 7 - Disposal of fixed assets Using the data from P7-4,...Ch. 7 - Disposal of fixed assets Using the data from P7-4,...Ch. 7 - Disposal of fixed assets Using the data from P7-4,...Ch. 7 - Depletion, patent amortization, goodwill...Ch. 7 - Asset turnover United Continental Holdings. Inc.,...Ch. 7 - Asset turnover United Continental Holdings. Inc.,...Ch. 7 - Asset turnover Southwest Airlines (LUV) operates...Ch. 7 - Asset turnover Southwest Airlines (LUV) operates...Ch. 7 - Asset turnover JetBlue Airways Corporation (JBLU)...Ch. 7 - Asset turnover JetBlue Airways Corporation (JBLU)...Ch. 7 - Asset turnover Compare the asset turnover ratios...Ch. 7 - Asset turnover Comment on the results from part...Ch. 7 - Asset turnover Marriott International Inc. (MAR)...Ch. 7 - Asset turnover Marriott International Inc. (MAR)...Ch. 7 - Ethics and professional conduct in business Rowel...Ch. 7 - Financial vs. tax depreciation The following is an...Ch. 7 - Effect of depreciation on net income Einstein...Ch. 7 - Effect of depreciation on net income Einstein...Ch. 7 - Effect of depreciation on net income Einstein...Ch. 7 - Lease or buy You are planning to acquire an asset...Ch. 7 - Applying for patents, copyrights, and trademarks...Ch. 7 - Ethics and professional conduct in business The...

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