Reference no: EM132489121

Question - Hills Hardware purchased new shelving for its store on April 1, 2018. The shelving is expected to have a 20-year life and no residual value. The following expenditures were associated with the purchase.

Cost of the shelving $12,000

Freight charges 520

Sales taxes 780

Installation of shelving 2,700

Cost to repair shelf damaged during installation 400

Required -

a. 1. Compute depreciation expense for the years 2018 through 2021, using the straight-line method with fractional years rounded to the nearest whole month.

2. Compute depreciation expense for the years 2018 through 2021, using the 200 percent declining-balance, using the half-year convention.

3. Compute depreciation expense for the years 2018 through 2021, using the 150 percent declining-balance, using the half-year convention.

b. What method of depreciation would Hills Hardware use on its federal tax return to achieve the lowest amount of taxable income in the early years of an asset's life?

c. 1. Which of the depreciation methods applied in part a will result in the lowest reported book value at the end of 2021?

2. Is book value an estimate of an asset's fair value?

d. 1. Assume that Hills Hardware sold the old shelving that was being replaced. The old shelving had originally cost $9,000. Its book value at the time of the sale was $400. Record the sale of the old shelving for $1,100 cash.

2. Assume that Hills Hardware sold the old shelving that was being replaced. The old shelving had originally cost $9,000. Its book value at the time of the sale was $400. Record the sale of the old shelving for $175 cash.