Question

Please show your works! Thanks

swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $149,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $9,000. The company reports on a calendar year basis. Required:

a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used).

a-2. Prepare a complete depreciation schedule, beginning with the current year, using the 200 percent declining-balance method. (Assume that the half-year convention is used).

a-3. Prepare a complete depreciation schedule, beginning with the current year, using the 150 percent declining-balance, switching to straight-line when that maximizes the expense. (Assume that the half-year convention is used).

b. Which of the three methods computed in part a is most common for financial reporting purposes?

c. Assume that Swanson & Hiller sells the machine on December 31 of the fourth year for $29,500 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.

Answer 1

a-1	SLM
	Depreciable amount	=(149000-9000)/5	28000	per year
	Year	Opening Book value	Depreciaiton	Closing book value
	1	149,000.00	9,333	139,667
	2	139,667	28000	111,667
	3	111,667	28000	83,667
	4	83,667	28000	55,667
	5	55,667	28000	27,667
	6	27,667	18667	9,000
a-2	200% declining rate	=100/5*2	40	%
	Year	Opening boon value	Depreciation (opening * 0.4)	Closing book value
	1	149,000.00	19,866.67	129,133.33	( for 4 months only)
	2	129,133.33	51,653.33	77,480.00
	3	77,480.00	30,992.00	46,488.00
	4	46,488.00	18,595.20	27,892.80
	5	27,892.80	11,157.12	16,735.68
	6	16,735.68	4,462.85	12,272.83	(for 8 months)
a-3	150% declining rate	=100/5*1.5	30	%
	Year	Opening boon value	Depreciation (opening * 0.3) 150 % declining	Remaining life	Depreciaiton SLM	Higher of both depreciaiton	Closing BV
	1	149,000.00	14,900.00	5.00	9,333.33	14,900.00	134,100.00
	2	134,100.00	40,230.00	4.67	26,807.14	40,230.00	93,870.00
	3	93,870.00	28,161.00	3.67	23,146.36	28,161.00	65,709.00
	4	65,709.00	19,712.70	2.67	21,265.88	21,265.88	44,443.13
	5	44,443.13	13,332.94	1.67	21,265.88	21,265.88	23,177.25
	6	23,177.25	6,953.18	0.67	14,177.25	14,177.25	9,000.00
b	SLM is part of common financila statements.
c	Sold December 31 4th year
	Method	Sale price	Cosing book value	Profit/(loss)
	SLM	29500	55,667	(26,167)
	200%	29500	27,892.80	1,607
	150%	29500	44,443.13	(14,943)