ch11_sol

# Prepare a schedule showing the amount of accumulated

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3-year period ending December 31, 2013? Prepare a schedule showing the amount of accumulated depreciation at December 31, 2013, under the method selected. Ignore present value, income tax, and deferred income tax considerations. The straight-line method would provide the highest total net income for financial reporting over the three years, as it reports the lowest total depreciation expense. These computations are provided below. Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation

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Name: Solution Date: Instructor: Course: (3) Sum-of-the-years’-digits: Year 2011 \$400,000 \$400,000 [(5/15) × \$1,200,000] 2012 320,000 720,000 [(4/15) × \$1,200,000] 2013 240,000 960,000 [(3/15) × \$1,200,000] \$960,000 (4) Units-of-output: Year Cost \$1,260,000 2011 12,000 \$288,000 \$288,000 Salvage value 60,000 2012 11,000 \$264,000 552,000 Depreciable value 1,200,000 2013 10,000 \$240,000 792,000 Expected life output 50,000 2014 9,000 \$792,000 Unit depreciation expense \$24.00 2015 8,000 Total units 50,000 General MACRS method: (Values taken from the MACRS rates schedule.) Total Cost 2011 1,260,000 × 14.29% = \$180,054 \$180,054 2012 1,260,000 × 24.49% = 308,574 488,628 2013 1,260,000 × 17.49% = 220,374 709,002 \$709,002 Optional straight-line method: Total Cost 2011 1,260,000 × (1/7 X 1/2) = \$90,000 \$90,000 2012 1,260,000 × 1/7 = 180,000 270,000 2013 1,260,000 × 1/7 = 180,000 450,000 \$450,000 Depreciation Expense Accumulated Depreciation Expected Output Depreciation Expense Accumulated Depreciation (b) Which depreciation method (MACRS or optional straight-line) would minimize net income for income tax reporting for the 3-year period ending December 31, 2011? Determine the amount of accumulated depreciation at December 31, 2011. Ignore present value considerations. MACRS Rates (%) Depreciation Expense Accumulated Depreciation Depreciation Rate Annual Depreciation Accumulated Depreciation The general MACRS method would have higher depreciation expense (\$709,002) than that of the optional straight-line method (\$450,000) for the three-year period ending December 31, 2013. Therefore, the general MACRS method would minimize net income for income tax purposes for this period.
Name: Date: Instructor: Course: small machine-tool manufacturer, acquired for \$1,260,000 a piece of new industrial equipment. The new equipment had a useful life of 5 years, and the salvage value was estimated to be \$60,000 . Locke estimates that the new equipment can produce 12,000 machine tools in its first year. It estimates that production will decline by 1,000 units per year over the remaining useful life of the equipment. The following depreciation methods may be used: (1) Straight-line, (2) Double-declining balance, (3) Sum-of-years'-digits, and (4) Units-of-output. For tax purposes, the class life is 7 years. Use the MACRS tables for c omputing depreciation. Instructions: (1) Straight-line: Cost Amount Salvage value Amount Depreciable value Formula Life Number Annual depreciation expense Formula Year 2011 Formula Formula 2012 Formula Formula 2013 Formula Formula Formula (2) Double-declining balance: Year 2011 Formula Formula 2012 Formula Formula 2013 Formula Formula Formula Intermediate Accounting , 14 th Edition by Kieso, Weygandt, and Warfield Primer on Using Excel in Accounting by Rex A Schildhouse 11-12 (Depreciation—SL, DDB, SYD, Act., and MACRS) On January 1, 2011, Locke Company, a (a) Which depreciation method would maximize net income for financial statement reporting for the 3-year period ending December 31, 2013? Prepare a schedule showing the amount of

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