Use the information from Exercise 8-1. Assume that the double-declining-balance method will be used for tax purposes and the straight-line method will be used for the financial statement to be given to the stockholders. Also assume that the tax rate is 40%.
Required
How much will the tax savings be in the first year as a result of using the accelerated method of depreciation?
Exercise 8-1:
Assume that a company purchases a depreciable asset on January 1 for $10,000. The asset has a four-year life and will have zero residual value at the end of the fourth year.
Calculate depreciation expense for each of the four years using the straight-line method and the double-declining-balance method.
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