Problem 8-3A Book versus Tax Depreciation Payton Delivery Service purchased a delivery truck for $28,200. The truck will have a useful life of six years and zero salvage value. For the purposes of preparing financial statements, Payton is planning to use straight-line depreciation. For tax purposes, Payton follows MACRS. Deprecia- tion expense using MACRS is $5,650 in Year 1, $9,025 in Year 2, $5,400 in Year 3, $3,250 in each of Years 4 and 5, and $1,625 in Year 6. Required 1. What is the difference between straight-line and MACRS depreciation expense for each of the six years? 2. Payton’s president has asked why you use one method for the books and another for tax cal- culations. ‘‘Can you do this? Is it legal? Don’t we take the same total depreciation either way?’’ he asked. Write a brief memo answering his questions and explaining the benefits of using two methods for depreciation.
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