Question

Alexa Inc. purchased equipment in 2018 for $50,000 with no residual value. On December 31, 2020, accumulated depreciation using the straight-line method for financial reporting was $15,000. For tax purposes, Alexa uses MACRS depreciation resulting in $35,600 in accumulated depreciation for tax purposes on December 31, 2020. Taxable income was $100,000 for 2020 and the company's tax rate is 25%.

Required:
a. Determine the GAAP basis of equipment (net) on December 30, 2020.
b. Determine the tax basis of equipment on December 30, 2020.

Answer 1

Answer:

a. $35,000

b. $14,400

Explanation:

The computation is shown below;

a. GAAP basis of equipment (net) is

Purchase equipment $50,000

Less: accumulated depreciation for finnacial reporting -$15,000

Equipment (net) $35,000

b. Tax bais of equipment is

Purchase equipment $50,000

Less: accumulated deprecation for tax purposes - $35,600

Equipment net $14,400

The above should be considered and relevant too