Swanson & Hiller, Inc., purchased a new machine on September 1 of the current ye
ID: 2599495 • Letter: S
Question
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $140,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. 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 $32,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.
Explanation / Answer
Computation of gain or loss on disposal:
Cash Proceeds 32,000
Less : Book value at the end of 4th year 49,000
Loss on Disposal 17,000
Computation of gain or Loss on disposal:
Cash Proceeds 32,000
Less: Book value at the end of 4th Year - 24,192
gain on Disposal 7808
Computation of gain or loss on disposal :
Cash Proceeds 32,000
Less : Book value at the end of 4th year 40,817
Loss on disposal of asset 8817
b) Swanson& Hiller will probably use the straight line method for financial reporting purposes, as this method results in the least amount of depreciation expense in the early years of the asset's useful life.
a-1) Straight Line method Year Computation Depreciation Accumalated depreciation Book Value 1 (1,40000-10000)*1/5*1/2 13000 13000 127000 2 (1,40,000-10000)*1/5 26000 39000 101000 3 (1,40,000-10000)*1/5 26000 65000 75000 4 (1,40,000-10000)*1/5 26000 91000 49000 5 (1,400,00-10000)*1/5 26000 1,17,000 23000 6 (1,40,000-10000)*1/5*1/2 13000 1,30,000 10,000Related Questions
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