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Brown Co. purchased a piece of equipment at the beginning of Year 1 for $25,000,000....

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Accounting

Brown Co. purchased a piece of equipment at the beginning of Year 1 for $25,000,000. Management estimates that the equipment will have a useful life of seven years and a $5,000,000 salvage value. The depreciation expense recorded for tax purposes is computed using the double-declining balance method of depreciation. The company uses the straight-line method of depreciation for reporting purposes.

Calculate the amount of depreciation expense for reporting purposes for Year 4 (i.e., the fourth full year of depreciation). Then calculate the amount of depreciation expense for tax purposes for Year 4 (i.e., the fourth full year of depreciation). Use this information to determine the correct answers to the following two (2) questions:

2.) Assuming that the companys tax rate is 25%, what dollar amount (as an absolute value) will be added (if your answer to the prior question was a) or subtracted (if your answer to the prior question was b) to the deferred tax account in Year 4 as a result of the depreciation timing difference?

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