Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $150,000. 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?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $150,000. 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
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 $30,500 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.
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