Book versus T ax 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. Depreciation 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 calculations. “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.