1. At the beginning of 2017, Brignt Co. purchased a truck for $84,000 with an estimated...

1. At the beginning of 2017, Brignt Co. purchased a truck for $84,000 with an estimated useful life of 7 years and an estimated salvage value of $7,000. For financial reporting purposes, the truck is being depreciated using the straight-line method; for tax purposes, the double-declining-balance method is being used. Bright Co.'s tax rate is 34% for 2017 and all future years.

a) At the end of 2017, what are the book bases and the tax basis of the truck?

Truck's Book Basis is: __________

Truck's Tax Basis is: ____________

Solutions

Expert Solution

Book basis is a measure to find out the value of an asset to record in the books of the company. It can change based on factors like improvement of assets or depreciation on asset.

Depreciation is provided on truck using straight line method of depreciation.

Straight line depreciation amount= (Cost price of asset- Salvage value) / Useful life of asset

Depreciation= (84,000-7,000) / 7

= $11,000

Book basis of truck will be purchase price less depreciation during the year.

= $84,000- $11,000

= $73,000

Tax adjusted basis is a measure to know the worth of an asset for tax purposes. It is calculated by taking the original cost of the asset and adjusting it for various tax-related allowances such as depreciation.

Depreciation for this basis will be calculated by using double-declining method of depreciation, which is double the rate of straight line depreciation amount, i.e. $11,000 * 2 = $22,000

Tax basis of truck will be purchase price less depreciation for the year.

= $84,000- $22,000

= $62,000

ekkarill92 answered 1 year ago

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