Question

Part 4A:(In 200 words) Using an American publicly traded company as an example describe what the graph would look like for the Straight-line depreciation method. Explain why the graph would visually represent the Straight-line depreciation method.

Part 4B:(In 200 words) (Using an American publicly traded company as an example) Using the straight-line method for amortizing a discount or premium, provide an example of the entry to issue a bond at par and the entry for the first 6 month interest payment. For each 6 month interest payment, explain why the interest expense amount is different (or the same) from the interest payment amount

Answer 1

Line graph should be used for the Straight-line depreciation method.

Graph would visually represent the Straight-line depreciation method because in this method the amount of depreciation is charged remains constant through out the whole life of the asset (other things being remain constant). So, the value of asset depletes with the constant amount every year. Let us take an example for making this more clear.

Cost of the asset is Rs.10000 Salvage Value of the asset is Rs. 2000 Useful Life of the asset is 5 Years

Now we will calculate the depreciation using straight-line depreciation method. Straight-line depreciation is calculated simply by dividing the cost of an asset lessed by its salvage value, by useful life of the asset.

Depreciation = ( Cost of the asset - salvage value)/Useful life of the asset

= (Rs.10000 - Rs.2000)/5 = Rs.1600

Year	Value (beginning of the year)(amount in Rs.)	Depreciation(amount in Rs.)	Value (end of the year)(amount in Rs.)
1	10000	1600	8400
2	8400	1600	6800
3	6800	1600	5200
4	5200	1600	3600
5	3600	1600	2000

The value of the asset at the end of 5th year will be equal to the salvage value of the asset. Now let us represent this on a graph.