Sal’s Salon purchased new furniture and fixture for its store on April 1, 2001. The furniture and fixture is expected to have a 10-year life and no residual value. The following expenditures were associated with the purchase: Cost of the furniture and fixture $10,000 Freight charges 350 Sales taxes 600 Installation of furniture and fixture 50 Cost to repair F & F damaged during installation 500 Instructions a. Compute depreciation expense for the years 2001 through 2004 under each depreciation method listed below: 1. Straight-line, with fractional years rounded to the nearest whole month. 2. 200% declining-balance, using the half-year convention. b. Sal’s Salon has two conflicting objectives. Management wants to report the highest possible earnings in its financial statements, yet it also wants to minimize its taxable income reported to the FBR. Explain how both of these objectives can be met. c. Which of the depreciation methods applied in part a resulted in the lowest reported book value at the end of 2004? Is book value an estimate of an asset’s fair market value? Explain. d. Assume that Sal’s Salon sold the old furniture that was being replaced. The old furniture and fixture had originally cost $6,000. Its book value at the time of the sale was $500. Record the sale of the old furniture and fixture under the following conditions: 1. The furniture and fixture was sold for $900 cash. 2. The furniture and fixture was sold for $200 cash.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 10E: Hathaway Company purchased a copying machine for 8,700 on October 1, 2019. The machines residual...

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Sal’s Salon purchased new furniture and fixture for its store on April 1, 2001. The furniture and fixture is expected to have a 10-year life and no residual value. The following expenditures were associated with the purchase: Cost of the furniture and fixture $10,000 Freight charges 350 Sales taxes 600 Installation of furniture and fixture 50 Cost to repair F & F damaged during installation 500 Instructions a. Compute depreciation expense for the years 2001 through 2004 under each depreciation method listed below: 1. Straight-line, with fractional years rounded to the nearest whole month. 2. 200% declining-balance, using the half-year convention. b. Sal’s Salon has two conflicting objectives. Management wants to report the highest possible earnings in its financial statements, yet it also wants to minimize its taxable income reported to the FBR. Explain how both of these objectives can be met. c. Which of the depreciation methods applied in part a resulted in the lowest reported book value at the end of 2004? Is book value an estimate of an asset’s fair market value? Explain. d. Assume that Sal’s Salon sold the old furniture that was being replaced. The old furniture and fixture had originally cost $6,000. Its book value at the time of the sale was $500. Record the sale of the old furniture and fixture under the following conditions: 1. The furniture and fixture was sold for $900 cash. 2. The furniture and fixture was sold for $200 cash.

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