Midwest States Manufacturing purchased factory equipment on March 15, 2007. The equipment will be depreciated for financial purposes over its estimated useful life, counting the year of acquisition as a half-year. The company accountant revealed the following information regarding this machine:
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,000
Residual value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,000
Estimated useful life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 years
1. What amount should Midwest States Manufacturing record for depreciation expense for 2008 using the (a) double-declining-balance method and (b) sum-of-the-years’-digits method?
2. Assuming the equipment is classified as 7-year property under the modified accelerated cost recovery system (MACRS), what amount should Midwest States Manufacturing deduct for depreciation on its tax return in 2008?