Swanson & Hiller, Inc., purchased a new machine on September 1, 2008, at a cost

Question

Swanson & Hiller, Inc., purchased a new machine on September 1, 2008, at a cost of $118,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $1,000.

Prepare a complete depreciation schedule, beginning with calendar year 2008, using the straight-line method (assume that the half-year convention is used).
   

Prepare a complete depreciation schedule, beginning with calendar year 2008, using the 200 percent declining-balance schedule method (assume that the half-year convention is used).

Prepare a complete depreciation schedule, beginning with calendar year 2008, using the 150 percent declining-balance schedule method, switching to straight-line when that maximizes the expense (assume that the half-year convention is used).
   

Assume that Swanson & Hiller sells the machine on December 31, 2011, for $25,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a.

Explanation / Answer

a-1 Prepare a complete depreciation schedule, beginning with calendar year 2008, using the straight-line method (assume that the half-year convention is used). Year Depreciation Expense Accumulated Depreciation Book Value 2008 $      11,700 $         11,700 $           106,300 2009 $      23,400 $         35,100 $             82,900 2010 $      23,400 $         58,500 $             59,500 2011 $      23,400 $         81,900 $             36,100 2012 $      23,400 $      105,300 $             12,700 2013 $      11,700 $      117,000 $                1,000 a-2 Prepare a complete depreciation schedule, beginning with calendar year 2008, using the 200 percent declining-balance schedule method (assume that the half-year convention is used). Year Depreciation Expense Accumulated Depreciation Book Value 2008 $23,600.00 $   23,600.00 $       94,400.00 2009 $37,760.00 $   61,360.00 $       56,640.00 2010 $22,656.00 $   84,016.00 $       33,984.00 2011 $13,593.60 $   97,609.60 $       20,390.40 2012 $   8,156.16 $105,765.76 $       12,234.24 2013 $   4,893.70 $110,659.46 $          7,340.54 a-3 Prepare a complete depreciation schedule, beginning with calendar year 2008, using the 150 percent declining-balance schedule method, switching to straight-line when that maximizes the expense (assume that the half-year convention is used). Year Depreciation Expense Accumulated Depreciation Book Value 2008 $17,700.00 $   17,700.00 $     100,300.00 2009 $30,090.00 $   47,790.00 $       70,210.00 2010 $21,063.00 $   68,853.00 $       49,147.00 2011 $14,744.10 $   83,597.10 $       34,402.90 2012 $10,320.87 $   93,917.97 $       24,082.03 2013 $   7,224.61 $101,142.58 $       16,857.42 b. Which of the three methods computed in part a is most common for financial reporting purposes? Straight-line method. c. Assume that Swanson & Hiller sells the machine on December 31, 2011, for $25,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a. Straight-line Loss $       11,100 200 percent declining-balance. Gain $   4,609.60 150 percent declining-balance. Loss $   9,402.90

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