Question

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.

Please help me with the equations how to work this problem.

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 $31,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.

Answer 1

a-1.	Straight-line rate
	Years	Depreciation Expense	Accumulated Depreciation	Book Value, End of Year
	1	$14,000	$14,000	$135,000
	2	$28,000	$42,000	$107,000
	3	$28,000	$70,000	$79,000
	4	$28,000	$98,000	$51,000
	5	$28,000	$126,000	$23,000
	6	$14,000	$140,000	$9,000
	Depreciation per year = ($149,000 - $9,000)/5
a-2.	200% Declining balance method
	Years	Depreciation Expense	Accumulated Depreciation	Book Value, End of Year
	1	$29,800	$29,800	$119,200
	2	$47,680	$77,480	$71,520
	3	$28,608	$106,088	$42,912
	4	$17,164	$123,252	$25,748
	5	$11,165	$134,417	$14,583
	6	$5,583	$140,000	$9,000
a-3.	150% Declining balance method
	Years	Depreciation Expense	Accumulated Depreciation	Book Value, End of Year
	1	$22,350	$22,350	$126,650
	2	$37,995	$60,345	$88,655
	3	$26,597	$86,942	$62,058
	4	$21,223	$108,165	$40,835
	5	$21,223	$129,388	$19,612
	6	$10,612	$140,000	$9,000
b	The most common method for financial reporting purposes is Straight-line
c	Computation of gains or losses upon disposal
	Straight-line
	Cash proceeds	$31,000
	Book value on 4th year	($51,000)
	Loss on disposal	($20,000)
	200% Declining balance method
	Cash proceeds	$31,000
	Book value on 4th year	($25,748)
	Loss on disposal	$5,252
	150% Declining balance method
	Cash proceeds	$31,000
	Book value on 4th year	($40,835)
	Loss on disposal	($9,835)