Answer and Explanation:
The computation is shown below:
For year 1
According to the Company's Books Depreciation
= (Orginal Cost - Salvage value) ÷ useful Life
= ($50,000 - $5,000) ÷ 10 years
= $4,500
According to the Income Tax Depreciation
= Cost × MACRS Rate for Year 1
= $50,000 × 20%
= $10,000
So, the difference in year 1 is
= $10,000 - $4,500
= $5,500
For year 2
According to the Company's Books Depreciation
= (Orginal Cost - Salvage value) ÷ useful Life
= ($50,000 - $5,000) ÷ 10 years
= $4,500
According to the Income Tax Depreciation
= Cost × MACRS Rate for Year 2
= $50,000 × 32%
= $16,000
So, the difference in year 1 is
= $16,000 - $4,500
= $11,500
