Question

Return to question 1 Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $109,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $9,000. The company reports on a calendar year basis. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half- year convention is used). a-2. Prepare a complete depreciation schedule, beginning with the current year, using the 200 percent declining-balance method (Assume that the half-year convention is used). a-3. Prepare a complete depreciation schedule, beginning with the current year, using the 150 percent declining-balance, switching to straight-line when that maximizes the expense. (Assume that the half-year convention is used) b. Which of the three methods computed in part a is most common for financial reporting purposes? c. Assume that Swanson & Hiller sells the machine on December 31 of the fourth year for $29,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a. 10 points


My third time asking this question here, no matter what I do I get it wrong. This is my very last guess and this single question is worth 1/4 of my grade on this assignment. Can someone who is 100% sure they know what they are doing help me please?

No photos/handwritten because I can't see them thanks

Answer 1

• Answer a-1 :

  Using half year convention.

  Depreciation value is calculated using the formula = (Current value - salvage value)/no of years

  In half year convention method if it is purchased after June, half depreciation amount will be taken in that year

	Depreciation amount	Accumulated amount	Book value
current year 1	10000	10000	98000
2	20000	30000	78000
3	20000	50000	58000
4	20000	70000	38000
5	20000	90000	18000
6	10000	100000	8000

Answer a-3: Depreciation amount calculation: 150% * book value

For first year using half year convention it will be : $109000*30% *1/2 = $16350

Next year depreciation amount = remaining book value * 30% = $91800 *30%

150% decline method Depreciation amount Accumulated amount Book value current year 1 16350 16200 91800 2 27690 43740 64260 3 19278 63018 44982 4 13495 76513 31487 5 11744* 88257 19743 6 11743* 100000 8000

Switch to the straight line depreciation after the depreciation amount of $13495 after which expense under 150% declining method would be low and straight line would be higher.

Amount calculated in straight line depreciation is (31487-8000)/2 = 11744

Answer C: December 31 means whole year depreciation will be counted

For straight line:

Book value of the machine left $38000

Sold in $29000

Resulting loss is $29000-$38000

= -$9000

In 150% declining method

Book value at the fourth year = $31487

Sold at $29000

Resulting loss is = $29000-$31487 = -$2487