Comparison of Depreciation Methods P4. Italian Construction Company purchased a new crane for $360,500 at the begin- ning of year 1. The crane has an estimated residual value of $35,000 and an estimated useful life of six years. The crane is expected to last 10,000 hours. It was used 1,800 hours in year 1; 2,000 hours in year 2; 2,500 hours in year 3; 1,500 hours in year 4; 1,200 hours in year 5; and 1,000 hours in year 6. REQUIRED 1. Compute the annual depreciation and carrying value for the new crane for each of the six years under each of the following methods: (a) straight-line, (b) production, and (c) double-declining-balance (round percentage to two decimal places.) 2. If the crane is sold for $250,000 after year 3, what would be the amount of gain or loss under each method? 3. ACCOUNTING CONNECTION ▶ Do the three methods differ in their effect on the company's profitability? Do they differ in their effect on the company's operating cash flows? Explain.
Comparison of Depreciation Methods P4. Italian Construction Company purchased a new crane for $360,500 at the begin- ning of year 1. The crane has an estimated residual value of $35,000 and an estimated useful life of six years. The crane is expected to last 10,000 hours. It was used 1,800 hours in year 1; 2,000 hours in year 2; 2,500 hours in year 3; 1,500 hours in year 4; 1,200 hours in year 5; and 1,000 hours in year 6. REQUIRED 1. Compute the annual depreciation and carrying value for the new crane for each of the six years under each of the following methods: (a) straight-line, (b) production, and (c) double-declining-balance (round percentage to two decimal places.) 2. If the crane is sold for $250,000 after year 3, what would be the amount of gain or loss under each method? 3. ACCOUNTING CONNECTION ▶ Do the three methods differ in their effect on the company's profitability? Do they differ in their effect on the company's operating cash flows? Explain.
Century 21 Accounting General Journal
11th Edition
ISBN:9781337680059
Author:Gilbertson
Publisher:Gilbertson
Chapter19: Accounting For Plant Assets, Depreciation, And Intangible Assets
Section: Chapter Questions
Problem 1AFE
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Comparison of Depreciation Methods
P4. Italian Construction Company purchased a new crane for $360,500 at the begin-
ning of year 1. The crane has an estimated residual value of $35,000 and an estimated
useful life of six years. The crane is expected to last 10,000 hours. It was used 1,800
hours in year 1; 2,000 hours in year 2; 2,500 hours in year 3; 1,500 hours in year 4;
1,200 hours in year 5; and 1,000 hours in year 6.
REQUIRED
1. Compute the annual depreciation and carrying value for the new crane for each of
the six years under each of the following methods: (a) straight-line, (b) production,
and (c) double-declining-balance (round percentage to two decimal places.)
2. If the crane is sold for $250,000 after year 3, what would be the amount of gain or
loss under each method?
3. ACCOUNTING CONNECTION ▶ Do the three methods differ in their effect on the
company's profitability? Do they differ in their effect on the company's operating
cash flows? Explain.
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