At the beginning of the fiscal year, the Borland Company acquired new equipment at a cost of $89,000. The equipment has an estimated life of five years and an estimated salvage value of $10,000.
(a) Determine the annual depreciation (for financial reporting) for each of the five years of the estimated useful life of the equipment, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year. Use (1) the straight-line method, and (2) the double-declining-balance method for each.
(b) Determine the annual depreciation for tax purposes, assuming that the equipment falls into a seven-year MACRS property class.
(c) Assume that the equipment was depreciated under seven-year MACRS. In the first month of the fourth year, the equipment was traded in for similar equipment priced at $92,000. The trade-in allowance on the old equipment was $20,000, and cash was paid for the balance. What is the cost basis of the new equipment for computing the amount of depreciation for income tax purposes?