Please answer EACH part of the question pictured and the following sub-questions

Question

Please answer EACH part of the question pictured and the following sub-questions:
A). How does each method of depreciation affect net income and taxes? What other factors should we consider when making such a decision?
B). Please explain: WHY and HOW did EACH PART of B 1-6 affect the income statement / SE / Total Assets? Also, how would these factors change if Carlin Corporation had used MACRS, accelerated depreciation, or units-of-production depreciation? ALSO: how did the changes estimate affect the net income, total assets, and SE in EACH period?


Part IV. Plant Assets and Depreciation (12 points) A. (3 points) Patton Company is a small business whose owner needs some advice. The company purchased office equipment during the year 20X0 and is deciding which depreciation method to use on its financial statements. The owner prefers to recognize more net income earlier so that the company's operating performance will be impressive to its bank, but also prefers to defer paying taxes as long as possible. Which method would you advise the owner to choose and why? (6 points) Carlin Corporation uses the straight-line method of depreciation to depreciate some office equipment that it bought in January 20X0. The equipment was originally estimated to have a useful life of 4 years. However, on January 1, 20X2 (after recording 2 years of depreciation) the company changed the equipment's estimated useful life to 6 years (in total) In the space provided, show how the change in estimate will affect each of the following items by indicating whether it will now be higher (H), lower (L). or not affected (NA): B. Net income for the year 20X2 Net income for the year 20x5 Total assets on December 31, 20x4 Total assets on December 31, 20x5 Stockholders' equity on December 31,20x3 Stockholders' equity on December 31,20X5 Net i 2. 3, 4. 5. 6. C. (3 points) On March 15, 20X0, Evans Company sold a machine for $13,000 cash. The machine was originally purchased for $50,000 and accumulated depreciation of $40,000 had been recorded. How would the sale of the machine (NOT the depreciation of the machine affect the income statement for the year 20X0? Income Statement Account Name Increases (I) or Decreases (D) Net Income Dollar Amount

Explanation / Answer

Answer A) Usuallly in small business there are two type of depreciation method-(i) Straight Line Method (SLM) (ii) Written down value method (WDV).

Under SLM depreciation is charged at constant rate throughout the years, however under WDV high depreciation is charged during the initial years.

Accrodingly if the entity wants to show high profit and defer paying taxes as long possible SLM is optimum method of depreciation.

Other factors that should be consider while making a decision:-

Ans. B- 1.Net income for 20X2- Higher

2.Net income for 20X5- Lower

3. Total assets on 31st Dec,31, 20X4- Higher

4. Total assets on 31st Dec,31, 20X5- Higher

5. Stock holder equity on 31, dec, 20X3- unchaged

6. Stock holder equity on 31, dec, 20X5- unchaged

Ans. C- profit and loss a/c increase by 3,000

Journal entry would be:-

Bank A/c Dr. 13,0000

Accumulated Depreciation A/c Dr. 40,000

To Plant and machinery Account 50,000

To Profit and Loss A/c 3,000

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