Depreciation for Financial Statements and Income Tax Purposes
Response to the following problem:
The Dinkle Company purchased equipment for $50,000. The equipment has an estimated residual value of $5,000 and an expected useful life of 10 years. The company uses straight-line depreciation for its financial statements.
Required:
What is the difference between the company's income before taxes reported on its financial statements and the taxable income reported on its tax return in each of the first two years of the asset's life if the asset was purchased on January 2, 2010, and its MACRS life is five years?