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

Prepare a balance sheet and trial balance, Requirements: a.   Record the...

Requirements: a.   Record the following transactions in the journal of Howell Consulting. Explanations are not required. b.   Create T accounts for each transaction (Use the

Calculate the npv and arr, Calculate the NPV and ARR The manager of XY...

Calculate the NPV and ARR The manager of XYZ Ltd has identified a market for a new product that she estimates can be sold for $12 per unit. Research indicates that the busines

What is the pension expense that cooper enterprises, The following informat...

The following information for Cooper Enterprises is given below: December 31, 2013 Assets and obligations Plan assets (at fair value) $200,000 Accumulated benefit obligation 370,00

Financial ratio analysis, Financial ratio analysis Financial rati...

Financial ratio analysis Financial ratio analysis is a statistical tool that measures the relationship between two financial figures. It invol

Calculate the sales needed to earn a profit of 20% on sales, Question: ...

Question: The following data are obtained from the record of a factory:                                                        £                   £ Sales 4,000 units @ £2

Shorter discounting periods, Occasionally cash flows may have to be discoun...

Occasionally cash flows may have to be discounted more often than once a year semi- monthly, daily, annually or quarterly.  The outcome of this is as fold (i)  The number of per

Prepare a post-closing trial balance, As a recently hired accountant for a ...

As a recently hired accountant for a small business, Bearing, Inc., you are provided with last year's balance sheet, income statement, and post-closing trial balance to familiarize

Interest is deductible on schedule a, Heather & Terry have a mortgage on th...

Heather & Terry have a mortgage on their primary residence of $750,000 and a mortgage on their vacation home of $410,000. In 2013, they incurred $46,400 of mortgage interest expens

how can a flexible budget help managers control costs, 1.  How can a flexi...

1.  How can a flexible budget help managers control costs? A flexible budget can help managers control costs by showing favorable and unfavorable variances within the planning o

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