Question

In: Accounting

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: ____________

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 2 years ago

Marigold Industries purchased a truck at the beginning of 2020 for $109300. The truck is estimated...

Marigold Industries purchased a truck at the beginning of 2020 for $109300. The truck is estimated to have a salvage value of $3200 and a useful life of 117000 miles. It was driven 21000 miles in 2020 and 29000 miles in 2021. What is the depreciation expense for 2021? $27885 $26303 $45350 $7073

On May 5, 2017, Lloyd purchased a machine for $84,000. The estimated life of the machine...

On May 5, 2017, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of “output” is estimated at 8,000 hours of operation. Assume Lloyd uses the units-of-output method and that the machine was in operation for 1,000 hours in 2017 and 1,800 hours in 2018. The book value of the machine at December 31, 2018 is: $48,100 $56,700 $25,900 $58,100

A company purchased a truck for 150.000 $ in cash at the beginning of 2017. The...

A company purchased a truck for 150.000 $ in cash at the beginning of 2017. The truck was expected to be used by the company for 5 years. But the company needed urgent cash and decided to sell the truck at the end of 2019. The selling price was 80.000 $ and was collected in cash. What is the profit/loss for the company after these transactions? (Assume that the company uses straight-line depreciation method) a) 10.000 $ Profit b) 20.000...

On January 1, 2018, A Co. purchased a machine at a cost of $84,000. The machine...

On January 1, 2018, A Co. purchased a machine at a cost of $84,000. The machine is expected to last 5 years and has a residual value of $14,000. Required: 1. Compute depreciation for the five year periods ending December 31 using the straight-line, sum-of-the-years digits and DDB method. 2. The machine is sold on January 1,2020 for $40,000. Compute the gain or loss for each method.

At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated usefull...

At the beginning of 2015, Pitman Co. purchased an asset for $1,200,000 with an estimated usefull life of 5 years and an estimated salvage value of $100,000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Pitman Co.'s tax rate is 40% for 2015 and all future years. 1) what are the book basis and the tax basis of the asset at the end of 2015? 2)...

Linton Company purchased a delivery truck for $28,000 on January 1, 2017. The truck has an...

Linton Company purchased a delivery truck for $28,000 on January 1, 2017. The truck has an expected salvage value of $2,200, and is expected to be driven 110,000 miles over its estimated useful life of 10 years. Actual miles driven were 12,300 in 2017 and 10,000 in 2018. Collapse question part (a1) Correct answer. Your answer is correct. Calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.52.) Depreciation expense $Entry field with correct...

linton company purchased a delivery truck for 33.000 on january 1 2017 the truck has an...

linton company purchased a delivery truck for 33.000 on january 1 2017 the truck has an expected salvage value of 1,300 and is expected to be driving 109,000 miles over its esitmated useful of life of 9 years. acutal miles driving were 15,400 for 2017 and 12,500 in 2018 what is the depreication expense for 2017 and 2018 using the stright line method , the unit of activity method and the decling balance method

Linton Company purchased a delivery truck for $29,000 on January 1, 2017. The truck has an...

Linton Company purchased a delivery truck for $29,000 on January 1, 2017. The truck has an expected salvage value of $2,100, and is expected to be driven 106,000 miles over its estimated useful life of 10 years. Actual miles driven were 15,300 in 2017 and 13,400 in 2018. Correct answer. Your answer is correct. Calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.52.) Depreciation expense $Entry field with correct answer .25 per mile...

On May 5, 2009, Lloyd purchased a machine for $84,000. The estimated life of the machine...

On May 5, 2009, Lloyd purchased a machine for $84,000. The estimated life of the machine was 10 years, with an estimated residual value of $10,000. The service life in terms of “output” is estimated at 8,000 hours of operation. SHOW ALL WORKING 1. Refer to the above data. Assume Lloyd uses straight-line depreciation with the half-year convention. Depreciation expense to be recognized in 2009 (the year of purchase) is: a. $7,400. b $8,400. c $3,700.d Some other amount. 2....

Exercise 9-7 Linton Company purchased a delivery truck for $29,000 on January 1, 2017. The truck...

Exercise 9-7 Linton Company purchased a delivery truck for $29,000 on January 1, 2017. The truck has an expected salvage value of $1,100, and is expected to be driven 109,000 miles over its estimated useful life of 5 years. Actual miles driven were 12,200 in 2017 and 10,000 in 2018. Calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.52.) Depreciation expense $___________ per mile Compute depreciation expense for 2017 and 2018 using (1)...