3. A piece of equipmentis purchased for $odepreciation what is $20,000, has a sa

Question

3. A piece of equipmentis purchased for $odepreciation what is $20,000, has a salvage value of $2,000 and an estimated useful life of 5 expense each of the 5 years? vears. Using Straight Line depreciation what is the depreciation 4. A piece of equipment is purchased for $20,000, has a salvage value of $2,000 and an estimated useful life of 5 years. Using Double Declining Balance what is the depreciation expense each of the 5 years? Y2 Y4 Why would a company use a different depreciation method for Financial reporting purpos than is used for tax purposes? 5. 6. A contractor has a contract to construct the sanitary sewer, water line, storm drain, a street lighting for a new subdivision. The original estimate for the sewer was $25,00 $3,200 change order has been approved to add a manhole. The sewer work has bee completed by the contractor at a cost of $27,365. The original estimate for the wate was $31,000 and no change orders were approved. The costs to date for the water

Explanation / Answer

3 Equipment cost $20,000 Salvage value $2,000 Depreciable amount $18,000 Estimated life 5 years Dep. Per year $3,600 Year 1 $3,600 Year 2 $3,600 Year 3 $3,600 Year 4 $3,600 Year 5 $3,600 4 Equipment cost $20,000 Salvage value $2,000 Depreciable amount $18,000 Estimated life 5 years Year 1 $8,000 Year 2 $4,800 Year 3 $2,880 Year 4 $1,728 Year 5 $592 5 Most companies use different depreciation methods for tax and financial reporting.This is because these companies often make different accounting choices in financial reporting and tax reporting since there are different incentives that have been put in place. It is evident that firms that are profitable usually want to minimize their income taxes. For this reason, financial managers will make accounting choices that usually minimize net income generated in the come leading to minimizing of tax payments. One of the accounting choices that can lead to reduction of taxable income include accelerated depreciation method rather than the use of straight line. Companies will use accelerated method for income tax calculations and straight-line method for their financial statements

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