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Chapter 9: 8RQ (page 488)
Which depreciation method ignores residual value until the last year of depreciation? Why?
The method of depreciation which ignores residual value is the double-declining method.
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Question:In 150 words or fewer, explain the different methods that can be used to calculate depreciation. Your explanation should include how to calculate depreciation expense using each method.
Determining asset cost, preparing depreciation schedules (3 methods), and identifying depreciation results that meet management objectives
On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of \(100,000. Before placing the truck in service, Rapid spent \)3,000 painting it, \(600 replacing tires, and \)10,400 overhauling the engine. The truck should remain in service for five years and have a residual value of $12,000. The truck鈥檚 annual mileage is expected to be 32,000 miles in each of the first four years and 8,000 miles in the fifth year鈥�136,000 miles in total. In deciding which depreciation method to use, Andy Sargeant, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).
Requirements
1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value.
2. Rapid prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Rapid uses the truck. Identify the depreciation method that meets the company鈥檚 objectives.
Exchanging plant assets Micron Precision, Inc. purchased a computer for \(2,500, debiting Computer Equipment. During 2016 and 2017, Micron Precision, Inc. recorded total depreciation of \)1,600 on the computer. On January 1, 2018, Micron Precision, Inc. traded in the computer for a new one, paying \(2,100 cash. The fair market value of the new computer is \)3,900. Journalize Micron Precision, Inc.鈥檚 exchange of computers. Assume the exchange had commercial substance.
What is a natural resource? What is the process by which businesses spread the allocation of a natural resource鈥檚 cost over its usage?
Determining the cost of assets Lawson Furniture purchased land, paying \(65,000 cash and signing a \)250,000 note payable. In addition, Lawson paid delinquent property tax of \(5,000, title insurance costing \)4,000, and \(9,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of \)400,000. It also paid \(54,000 for a fence around the property, \)12,000 for a sign near the entrance, and $8,000 for special lighting of the grounds. Requirements
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