solutions ch 8

solutions ch 8 - E87. Req. 1 a. Straight-line: Year...

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E8–7. Req. 1 a. Straight-line: Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition $7,600 1 ($7,600 - $800) x 1/4 $1,700 $1,700 5,900 2 ($7,600 - $800) x 1/4 1,700 3,400 4,200 3 ($7,600 - $800) x 1/4 1,700 5,100 2,500 4 ($7,600 - $800) x 1/4 1,700 6,800 800 b. Units-of-production: ($7,600 – $800) ÷ 10,000 = $0.68 per hour of output Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition $7,600 1 $0.68 x 3,500 hours $2,380 $2,380 5,220 2 $0.68 x 3,200 hours 2,176 4,556 3,044 3 $0.68 x 2,200 hours 1,496 6,052 1,548 4 $0.68 x 1,100 hours 748 6,800 800 c. Double-declining-balance: Year Computation Depreciation Expense Accumulated Depreciation Net Book Value At acquisition $7,600 1 ($7,600 - $0) x 2/4 $3,800 $3,800 3,800 2 ($7,600 - $3,800) x 2/4 1,900 5,700 1,900 3 ($7,600 - $5,700) x 2/4 950 6,650 950 4 ($7,600 - $6,650) x 2/4 475 7,125 475 150 6,800 800 Req. 2 If the machine is used evenly throughout its life and its efficiency (economic value in use) is expected to decline steadily each period over its life, then straight-line depreciation would be preferable. If the machine is used at a consistent rate but the efficiency is expected to decline faster in the earlier years of its useful life, then an accelerated method would be appropriate [such as, double-declining-balance]. If the machine is used at different rates over its useful life and its efficiency declines with output, then the units-of-production method would be preferable because it would result in a better matching of depreciation expense with revenue earned. Too large. Net book value cannot be below residual value.
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For income tax purposes, accelerated methods may be advantageous, because an earlier tax deduction is preferable to a later tax deduction because of the time value of money. However, the accelerated methods may not satisfy the matching principle. E8–11. Req. 1 Depreciation Expense Book Value at End of Method of Depreciation Year 1 Year 2 Year 1 Year 2 Straight-line. .......................... $15,000 $15,000 $50,000 $35,000 Units-of-production. ............... 16,000 18,000 49,000 31,000 Double-declining-balance . .... 32,500 16,250 32,500 16,250 Computations: Amount to be depreciated: $65,000 – $5,000 = $60,000: Straight-line: $60,000 ÷ 4 years = $15,000 per year Units-of-production: $60,000 ÷ 150,000 units = $.40 per unit Year 1: 40,000 x $.40 = $16,000 Year 2: 45,000 x $.40 = $18,000 Double-declining-balance (Rate: 2 x the straight line rate of 25% (2/4) =
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solutions ch 8 - E87. Req. 1 a. Straight-line: Year...

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