TAX ACCOUNTING QUESTION

Franklin purchased $150,000 of new 10-year assets for his business in April of the current year.

Franklin understands that if he elects to use ADS to compute his regular income tax, there will be no difference between the cost recovery for computing the regular income tax and the AMT. Franklin wants to know the regular income tax cost, after three years, of using ADS rather than MACRS.

Assume that Franklin does not elect § 179 limited expensing and that his marginal tax rate is 28%. He does not claim any available additional first-year depreciation.

If required, round your final answers to the nearest dollar.

a. The cost recovery under MACRS at the end of three years is $.

b. The cost recovery under ADS (for AMT purposes) at the end of three years is $.

c. Assuming a marginal tax rate of 28%, the income tax cost after three years of using ADS instead of MACRS is $