You are the Chief Financial Officer of Wonderful Outboard Watercraft, Inc. (WOW) which is a new company. The current owners have two big concerns. One, they are concerned with having enough cash in the beginning years. Two, because they want to take in more owners (by selling them stock) the current owners are anxious to show prospective stockholders that WOW has a decent Net Income.
WOW purchased equipment at the beginning of the fiscal year for $150,000. It is expected to have a useful life of 5 years, or 15,000 operating hours, and a residual value of $30,000.
1.Compute the depreciation for the first and second years of use by each of the following methods.
2. Then, prepare a short memo to the existing stockholders (no more than 50 words) explaining which one you would recommend they select.
(b) units-of-production (2,500 hours first year; 3,250 hours second year)
(c) declining-balance at twice the straight-line rate
(Round the answer to the nearest dollar. Remember to show ALL of your work)
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