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Martin Motors purchased a machine that will help diagnose problems with
engines. The machine cost $210,000 on January 10, 2011 and a residual value of
$10,000 was anticipated, with a useful life of 5 years.
In 2011,
Martin Motors has a gross profit of $400,000 and operating expenses of
$180,000.
A) Martin
Motors has a tax rate of 35%. Compute the deprecation for 2011 under both the
straight-line and double-declining balance method.
B) Which
depreciation method, straight-line or accelerated method, should Martin Motors
use for tax purposes? What is the net cash saved between the 2 methods?
