Identify the depreciation methods, Financial Accounting

Assignment Help:

Identify the Depreciation Methods

On January 3, 2005, XYZ Distribution Co. paid $224,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $6,200, $6,700 sales tax, and $3,100 for a special platform on which to place the computer. XYZ management estimates that the computer will remain in service 5 years and have a residual value of $20,000. The computer will process 50,000 documents the first year, with annual processing decreasing by 5,000 documents during each of the next 4 years (that is, 45,000 documents in 2006; 40,000 documents in 2007; and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of three depreciation methods (straight-line, units-of- production, and double-declining-balance).

Required

1. For each of the generally accepted depreciation methods, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation, and asset book value.

2. XYZ reports to stockholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. For income tax purposes, however, the company uses the depreciation method that minimizes income tax payments in those early years. Consider the first year XYZ uses the computer. Identify the depreciation methods that meet XYZs objectives, assuming the income tax authorities would permit the use of any of the methods.

3. Assume that income before tax is $200,000 for the computer's first year. The income tax rate is 35%. For the two depreciation methods identified in Requirement 2, compare the net income. Show which method gives the net-income advantage and which method gives the tax advantage.


Related Discussions:- Identify the depreciation methods

Project, Looking for someone who can help me with my investment project

Looking for someone who can help me with my investment project

Small bankruptcies-bankruptcy and liquidation, SMALL BANKRUPTCIES The c...

SMALL BANKRUPTCIES The court may order the estate of a debtor to be administered summarily, if the debtor's assets are not likely to exceed Shs 12,000 in value.  This is known

Abbreviated cash budget, I need to know how to do a problem and whether I ...

I need to know how to do a problem and whether I am missing information.

Ratio analysis, You have previously been exposed to the 'Introduction and a...

You have previously been exposed to the 'Introduction and analysis' of financial statements in previous sections of this course. From now you might have acquired several familiarit

Cash flow, prepare a cash flow statement

prepare a cash flow statement

Explain why the operating cycle, The Operating Cycle Two Wheeler Cycle Shop...

The Operating Cycle Two Wheeler Cycle Shop buys all of its bikes from one manufacturer, Baxter Bikes. On average, bikes are on hand for 45 days before Two Wheeler sells them. The c

Statutory Merger, On January 1, 2013, NewTune Company exchanges 15,000 shar...

On January 1, 2013, NewTune Company exchanges 15,000 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each NewTune''s shares has a $4 par value and a

Sequential stages of an accounting information system, Relationship between...

Relationship between these aspects is set out in Figure.                                 Figure: The accounting information system There are four sequential stages of an

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd