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BUSI W3013 Solution to Problem Set 06 | Page 1 F INANCIAL A CCOUNTING BUSI W3013 | F ALL 2009 S OLUTION TO P ROBLEM S ET 06 P ROFESSOR A NDREW S CHMIDT All amounts are in millions 1. From note A, DOW uses the straight-line method of depreciation. However, DOW uses the declining balance depreciation method for assets capitalized through 1996. 2. From the balance sheet and note E, the balance of gross PP&E on 12/31/04 was $41,898. 3. From the balance sheet, the balance of accumulated depreciation on 12/31/04 was $28,070. 4. From the balance sheet, the balance of net PP&E on 12/31/04 was $13,828. 5. Land is not subject to depreciation, and construction in progress will be depreciated only when the constructed assets are complete and used in operations. So “depreciable PP&E” on 12/31/04 is $40,341 (526.7 + 1,911.2). 6. From note E, depreciation expense totaled $1,904. 7. Two line items on the income statement likely include depreciation expense: COGS and SG&A expenses. 8. Estimated Useful Life = Asset Cost ÷ Depreciation Expense = 40,341 ÷ 1,904 = 21.19 years 9.
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