At the beginning of 2015, Pitman Co. purchased as asset for $1,200,000 with an estimated useful life of 5 years and an estimated salvage value of $200,000. 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. At the end of 2015, what are the book basis and the tax basis of the asset? Book basis Tax basis a. 1,000,000 620,000 b. 980,000 620,000 c. 980,000 720,000 d. 1,000,000 720,000 At the end of 2015. which of the following deferred tax accounts and balances is reported on Pitman's balance sheet? Account Balance a. Deferred tax asset 136,000 b. Deferred tax liability 136,000 c. Deferred tax asset 112,000 d. Deferred tax liability 112,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
At the beginning of 2015, Pitman Co. purchased as asset for $1,200,000 with an estimated useful life of 5 years and an estimated salvage value of $200,000. For financial reporting purposes the asset is being
At the end of 2015, what are the book basis and the tax basis of the asset?
| Book basis | Tax basis | |
| a. | 1,000,000 | 620,000 |
| b. | 980,000 | 620,000 |
| c. | 980,000 | 720,000 |
| d. | 1,000,000 | 720,000 |
At the end of 2015. which of the following
| Account | Balance | |
| a. | 136,000 | |
| b. | 136,000 | |
| c. | Deferred tax asset | 112,000 |
| d. | Deferred tax liability | 112,000 |
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