Brockway, Inc.purchased some equipment on January 1, 2010, for $300, 000 that had a five-year useful life and no salvage value.Brockway used double-declining-balance depreciation for both financial reporting and income tax purposes.On January 1, 2012, Brockway changed to the straight-line depreciation method for this equipment and can justify the change.Brockway will continue to use double-declining balance depreciation for income tax reporting.Brockway's income tax rate is 30%.Assuming Brockway's 2012 income before depreciation and tax is $800, 000, Brockway's net income for 2012 would be
A)$534, 800
B)$570, 800
C)$764, 000
D)$800, 000

Question

Quizplus · Accepted Answer

The change from double-declining-balance to straight-line depreciation will result in a lower depreciation expense in 2012, increasing net income before taxes. However, for tax purposes, the company continues to use double-declining-balance, leading to a temporary difference and deferred tax. The calculation involves determining the depreciation expense under the new method, subtracting it from income before depreciation and tax, and then accounting for income tax.