Cost of equipment $ 1,260,000
Useful life 5 years
Estimated salvage value 60,000
Estimated machine tools to be produced in first year 12,000
Estimated production decline per year over the
remaining life of the equipment 1,000 units
Class life for tax purposes 7 years
The following depreciation methods may be used:
1. Straight-line
2. Double-declining balance
3. Sum-of-years'-digits
4. Units-of-output
MACRS tables
1 33.33 20.00 14.29 10.00
2 44.45 32.00 24.49 18.00
3 14.81 19.20 17.49 14.40
4 7.41 11.52 12.49 11.52
5 11.52 8.93 9.22
6 5.76 8.92 7.37
7 8.93 6.55
8 4.46 6.55
Instructions: (AICPA adapted)
a.
b.
P10.12 (LO1,6) Depreciation—SL, DDB, SYD, ACT, and MACRS
On January 1, 2024, Locke Company, a small machine-tool manufacturer, a piece of new
industrial equipment. Pertinent data follow:
Recover
Year
3-Year (200%
DB)
5-Year (200%
DB)
7-Year
(200% DB)
10-Year
(200% DB)
Which depreciation method would maximize net income for financial statement reporting
for the 3-year period ending December 31, 2026? Prepare a schedule showing the amount
of accumulated depreciation at December 31, 2026, under the method selected. Ignore
present value, income tax, and deferred income tax considerations.
Which depreciation method (MACRS or optional straight-line) would minimize net income
for income tax reporting for the 3-year period ending December 36, 2026? Determine the
amount of accumulated depreciation at December 31, 2026. Ignore present value
considerations.
NOTE: Enter a formula with cell references into the yellow shaded input cells. When
calculating depreciation, use one of Excel depreciation functions with cell references.
a.
1. Straight-line using the SLN function
Year
2024
2025
2026
2. Double-declining balance using the DDB function
Year
2024
2025
2026
3. Sum-of-years'-digits using the SYD function
Year
2024
2025
2026
4. Units-of-output using formulas
Unit depreciation per unit
Year
2024
2025
2026
Depreciation
Expense Accumulated
Depreciation
Depreciation
Expense
Accumulated
Depreciation
Depreciation
Expense Accumulated
Depreciation
Depreciation
Expense Accumulated
Depreciation
b. General MACRS method: (Values taken from the MACRS rates schedule.)
Year
2024
2025
2026
Optional straight-line method
Year
2024
2025
2026
Depreciation
Expense Accumulated
Depreciation
Depreciation
Expense
Accumulated
Depreciation
Method to maximize net income for financial statement reporting for the 3-year
period ending December 31, 2026
