Please show work, thank you! Swanson & Hiller, Inc, purchased a new machine on S
ID: 2572533 • Letter: P
Question
Please show work, thank you!
Swanson & Hiller, Inc, purchased a new machine on September 1 of the current year at a cost of $108,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $8,000. The company reports on a calendar year basis. Instructions a. Prepare a complete depreciation schedule, beginning with the current year, under each of the following methods listed (assume that the half-year convention is used). 1. Straight-line. 2. 200 percent declining-balance. 3. 150 percent declining-balance, switching to straight-line when that maximizes the expense. b. Which of the three methods computed in part a is most common for financial reporting purposes? Explain. c. Assume that Swanson & Hiller sells the machine on December 31 of the fourth year for $29,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a. Does the gain or loss reported in the company's income statement have any direct cash effects? Explain.Explanation / Answer
Answer a-1. Straight Line Method Depreciation per annum = ($108,000 - $8,000) / 5 Years = $20,000 per annum Year Depreciation Accumulated Deprecition Book Value 1 10,000 10,000 98,000 2 20,000 30,000 78,000 3 20,000 50,000 58,000 4 20,000 70,000 38,000 5 20,000 90,000 18,000 6 10,000 100,000 8,000 Answer a-2. 200% declining balance. Rate of depreciaion = 2 X 20% (Rate of Dep. Under straight line method) Rate of depreciaion = 40% Year Depreciation Accumulated Deprecition Book Value 1 21,600 21,600 86,400 2 34,560 56,160 51,840 3 20,736 76,896 31,104 4 12,442 89,338 18,662 5 7,465 96,803 11,197 6 3,197 100,000 8,000 In 6 th Year, switching to straight line method, in 6th year. Answer a-3. 150% declining balance. Rate of depreciaion = 1.5 X 20% (Rate of Dep. Under straight line method) Rate of depreciaion = 30% Year Depreciation Accumulated Deprecition Book Value 1 16,200 16,200 91,800 2 27,540 43,740 64,260 3 19,278 63,018 44,982 4 13,495 76,513 31,487 5 11,744 88,257 19,743 6 11,743 100,000 8,000 In 5 th Year, switching to straight line method. Answer b. Straight line method is mostly used because it is easy to understand and compute. Answer c. Straight Line 200% Declining Method 150% Declining Method Sales Price of Machine 29000 29000 29000 Book Value - 4 th Year 38,000 18,662 31,487 Gain (Loss) on sale of Mach (9,000) 10,338 (2,487)