On January 2 of year 1, XYZ Corp. acquired a piece of machinery for $50,000. The asset recovery period for the assets is seven years for both regular tax and AMT purposes. XYZ uses the double declining balance method to compute its tax depreciation on this asset and it uses 150 percent declining balance to determine its depreciation for AMT purposes. The following schedule projects the tax and AMT depreciation on the asset until it is fully depreciated:

a. What AMT adjustment relating to depreciation on the equipment will XYZ make for year 1? Is the adjustment positive (unfavorable) or negative (favorable)?
b. What AMT adjustment relating to depreciation on the equipment will XYZ make for year 5? Is the adjustment positive or negative?
c. If XYZ sells the equipment for $30,000 at the beginning of year 3, what AMT adjustment will it make in year 3 to reflect the difference in the gain or loss for regular tax and for AMT purposes on the sale (assume no year 3 depreciation)? Is the adjustment positive or negative?

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ах AMT Year Depreciation Basis at end of DepreciationBasis at end of year year $7,145 S12,245 $8,745 $6,245 $4,465 $4,460 S4,465 S2,230 S42.855 S30,610 $21,865 $15,620 $11.155 S6,695 S2,230 S0 $5,355 S9,565 $7,515 S6,125 S6,125 S6,125 S6,125 $3,065 $44,645 $35,080 $27,565 $21,440 $15,315 $9,190 $3,065 S0