Response to the following problem:
Your client, William England, is the sole shareholder of England Printer Manufacturing, Inc. The company manufactures printers for both large commercial applications and individual personal use. Demand for their printers is increasing and in order to meet the demand they need to increase production capacity. This will require the purchase of new equipment costing $475,000 in March 2016. It is expected that with the additional capacity, net income will be approximately $1,575,000 before considering additional depreciation on the new equipment. The production manager thinks the equipment will meet production demands for the next 10 years and could then be sold for $25,000.
William is uncertain of the impact the proposed purchase will have on the financial statements and tax return for the year ended December 31, 2016. You have been engaged to research the appropriate alternatives for depreciation for financial accounting presentation and the possible alternatives for determining depreciation on the 2016 tax return. As you look at depreciation methods for tax purposes, remember that tax law requires depreciation be determined using the MACRS system. There are options for additional first year depreciation, and the provisions of §179.