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Chapter 9: 10RQ (page 488)

What is the depreciation method that is used for tax accounting purposes? How is it different than the methods that are required by GAAP to be used for financial accounting purposes?

Short Answer

Expert verified

The method used for tax accounting is the Modified Accelerated Cost recovery system, it is different from the depreciation methods of GAAP as in this method businesses cannot decide the useful life of assets

Step by step solution

01

Method used in tax accounting

The method that is required by Internal Revenue Service (IRS) to be used for tax accounting is the Modified Accelerated Cost Recovery System (MACRS).

02

Difference between MACRS and other depreciation methods required GAAP

The major difference between MACRS and depreciation methods required by the GAAP is that in MACRS, the businesses do not get to choose the useful life of the asset, rather Internal revenue service specifies the useful life based on the specific classes.

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Most popular questions from this chapter

On October 31, 2018, Alternative Landscapes discarded equipment that had a cost of \(26,920. Accumulated Depreciation as of December 31, 2017, was \)25,000. Assume annual depreciation on the equipment is $1,920. Journalize the partial-year depreciation expense and disposal of the equipment.

How does a business decide which depreciation method is best to use?

Alpha Communication purchased equipment on January 1, 2018, for \(27,500. Suppose Alpha Communication sold the equipment for \)20,000 on December 31, 2020. Accumulated Depreciation as of December 31, 2020, was $10,000. Journalize the sale of the equipment, assuming straight-line depreciation was used.

Discarding of a fully depreciated asset On June 15, 2017, Family Furniture discarded equipment that cost \(27,000, a residual value of \)0, and was fully depreciated. Journalize the disposal of the equipment.

Question: What is a lump-sum purchase, and how is it accounted for?
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