Swanson & Hiller, Inc., purchased a new machine on September 1 of the current ye
ID: 2577315 • Letter: S
Question
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.
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-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).
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.
Explanation / Answer
Answer a-1 :
Usiing half year convention.
Depreciation value is calculated using the formula = (Current value - salvage value)/no of years
In half year convention method if it is purchased after june, half depreciation amount will be taken in that year
Answer a-3: Depreciation amount calculation : 150% * book value
for first year using half year convention it will be : $108000*30% *1/2 = $16200
Next year depreciation amount = remaining book value * 30% = $91800 *30%
Switch to the straight line depreciation after the depreciation amount of $13495 after which expense under 150% declining method would be low and staright line would be higher.
Amount calculated in staright line depreciation is (31487-8000)/2 = 11744
Answer C: december 31 means whole year depreciation will be counted
For straight line :
book value of the machine left $38000
sold in $29000
Resulting loss is $29000-$38000
= -$9000
in 150% declining method
book value at the fourth year = $31487
Sold at $29000
Resulting loss is = $29000-$31487 = -$2487
Depreciation amount Accumulated amount Book value current year 1 10000 10000 98000 2 20000 30000 78000 3 20000 50000 58000 4 20000 70000 38000 5 20000 90000 18000 6 10000 100000 8000Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.