Question

Q2. Company ABC bought an equipment for $20,000 in 2015, with useful life of 5 years $5,000 residual value amortized using straight-line method.

Prepare a table to illustrate the differences accounting income vs taxable income caused by this equipment.

Assume, this equipment was sold at the end of2017 for $11,000. Please prepare JEs for 2015, 2016 and 2017

Answer 1

Year	Book Value year start	Depreciation Exp.	Acc. Dep	Book Value year end
2015	$20,000	$3,000	$3,000	$17,000
2016	$17,000	$3,000	$6,000	$14,000
2017	$14,000	$3,000	$9,000	$11,000
Date	General Journal	Debit	Credit
2015	Cash	$20,000
	Equipment		$20,000
	Depreciation Exp.	$3,000
	Accumulated Depreciation Exp.		$3,000
2016
	Depreciation Exp.	$3,000
	Accumulated Depreciation Exp.		$3,000
2017
	Depreciation Exp.	$3,000
	Accumulated Depreciation Exp.		$3,000
	Cash	$11,000
	Accumulated Depreciation Exp.	$9,000
	Equipment		20000
Note: There is nothing mention about depreciation for Tax purpose and accounting
purpose having different useful life of the equipment, so assuming the same useful
life the equipment for tax and accounting purpose, there is a tax difference for this.