Print Technologies asset useful lives; Smart Hardware depreciation
Must be done in excel, the Excel Template 9.3A is attached for the problem.
Case 9.1
Mickey Gillespie is the controller of Print Technologies, a publicly owned company. The company is experiencing financial difficulties and is aggressively looking for ways to cut costs. Susan Bedell, the CEO, instructs Gillespie to lengthen from 5 to 10 years the useful life used in computing depreciation on certain special purpose machinery. Bedell believes that this change represents a substantial cost savings, as it will reduce the depreciation expense on these assets by nearly one half.
Note: the proposed change affects only the deprecation expense recognized in financial statements. Depreciation deductions in income tax returns will not be affected.
Instructions:
A. Discuss the extent to which Bedell's idea will, in fact achieve a cost savings. Consider the effects on both net income and cash flows.
B. Who is responsible for estimating the useful lives of plant assets?
C. Discuss any ethical issues that Gillespie should consider with respect to Bedell's instructions.
Problem 9.3A
Smart Hardware purchased new shelving for its store on April 1, 2009. The shelving is expected to have a 20 year life and no residual value. The following expenditures were associated with the purchase:
Cost of the Shelving $12,000
Freight charges $520
Sales tax $780
Installation of shelving $2,700
Cost of repair shelf damaged during installation $400
Instructions:
A. Compute depreciation expense for the years 2009 through 2012 under each depreciation method listed below.
1. Straight line, with fractional years rounded to the nearest whole month
2. 200 percent declining-balance, using the half year convention
3. 150 percent declining-balance, using the half year convention
B. Smart Hardware has two conflicting objectives. Management wants to report the highest possible earning in its financial statements. Yet it also wants to minimize its taxable income reported to the IRS. Explain how both of these objectives can be met.
C. Which of the depreciation methods applied in part a result in the lowest reported book value at the end of 2012? Is book value an estimate of an asset's fair value? Explain.
D. Assume that Smart Hardware sold the old shelving that was being replaced. The old shelving had originally cost $9,000. Its book value at the time of the sale was $400. Record the sale of the old shelving under the following conditions:
1. The shelving was sold for 1,200 cash
2. The shelving was sold for 200 cash.
Note: Depreciation Expense, 12/31/2010 = $1,155 (150% declining-balance)
Part A (2) year 2012 book value = $11,081
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- 9.03a excel template.xlsx
Student Name:
Class:
Problem 09-02
SWANSON & HILLER, INC.
Depreciation Schedules
a.(1) Straight-Line Schedule
Depreciation Accumulated Book
Year Expense Depreciation Value
2006
2007
2008
2009
2010
2011
a.(2) 200% Declining-Balance Schedule
Depreciation Accumulated Book
Year Expense Depreciation Value
2006
2007
2008
2009
2010
2011
a.(3) 150% Declining-Balance Schedule
Depreciation Accumulated Book
Year Expense Depreciation Value
2006
2007
2008
2009
*2010
*2011
*Switch to straight-line
b. Which of the three methods is most common for financial
reporting purposes? Explain.
Student Name:
Class:
Problem 09-02
SWANSON & HILLER, INC.
Computation of Gain or Loss upon Disposal
c.(1) Straight-Line
Cash proceeds
Book value on 12/31/09
Loss on disposal
c.(2) 200% Declining-Balance
Cash proceeds
Book value on 12/31/09
Gain on disposal
c.(3) 150% Declining-Balance
Cash proceeds
Book value on 12/31/04
Loss on disposal
statement have any direct cash effects? Explain.
Given Data P09-02:
SWANSON & HILLER, INC.
Cost of new machine purchased
on September 1, 2006 $ 108,000
Useful life in years 5
Residual value $ 8,000
Sale price of machine
on December 31, 2009 $ 28,000
Student Name:
Class:
Problem 09-03
SMART HARDWARE
Costs to be depreciated
Total cost to be depreciated
Depreciation Schedules
a.(1) Straight-Line (nearest whole month)
Depreciation Accumulated Book
Year Expense Depreciation Value
2009
2010
2011
2012
a.(2) 200% Declining-Balance (half-year convention)
Depreciation Accumulated Book
Year Expense Depreciation Value
2009
2010
2011
2012
a.(3) 150% Declining-Balance (half-year convention)
Depreciation Accumulated Book
Year Expense Depreciation Value
2009
2010
2011
2012
Student Name:
Class:
Problem 09-03
b. Management wants to report the highest possible earnings in its
financial statements, yet it also wants to minimize its taxable
income reported to the IRS. Explain how both of these
objectives can be met.
c. Which of the depreciation methods resulted in the lowest
reported book value at the end of 2010? Is book value an
estimate of an asset's fair value? Explain.
SMART HARDWARE
General Journal
Account Titles Debit Credit
d.(1) Sale price of $1200
Cash
Accumulated Depreciation: Shelving
Shelving
Gain on Disposal of Assets
d.(2) Sale price of $200
Cash
Accumulated Depreciation: Shelving
Loss on Sale of Asset
Shelving
Given Data P09-03:
SMART HARDWARE
Cost of new shelving purchased 4/1/2009:
Cost of shelving $ 12,000
Freight charges 520
Sales taxes 780
Installation of shelving 2,700
Repair cost 400
Useful life in years 20
Residual value $ 0
Part d. assumptions:
Cost of old shelving 9,000
Book value of old shelving 400
Sale price of old shelving (1) 1,200
Sale price of old shelving (2) 200
