For 2016,The Oscar Company records depreciation expense of $12,000 on its income statement and $9,000 of MACRS depreciation on its tax return.Which of the following answers is correct regarding the difference between the two figures?
A)Net income is understated by $3,000 on the 2016 income statement.
B)Deferred taxes of $3,000 are subtracted from taxable income of 2016.
C)The difference in depreciation expense is caused by differences between GAAP and the tax code.
D)The amount of depreciation recorded on the income tax return must be incorrect.

Question

Quizplus · Accepted Answer

The difference in depreciation expense is caused by differences between GAAP (Generally Accepted Accounting Principles) and the tax code. MACRS (Modified Accelerated Cost Recovery System) is the method of depreciation for tax purposes while companies may use different methods for financial reporting purposes. The difference between the two figures arises due to the difference in depreciation methods allowed under GAAP and the tax code. Therefore, option C is the correct answer.

For 2016,The Oscar Company Records Depreciation Expense of $12,000 on Its