Bombardier Inc. is one of the largest manufacturers of planes and trains in the world. The company's long-lived assets exceed $12 billion. As a result, depreciation is a significant item on Bombardier's statement of earnings. You are a financial analyst for Bombardier and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life is 13 years, and the estimated residual value is $2,000. The machine has an estimated useful life in productive output of 200,000 units. Actual output was 20,000 in year 1 and 16,000 in year 2. Required: 1. For years 1 and 2 only, prepare a separate depreciation schedule for each of the following alternative methods. Round your computations to the nearest dollar. a. Straight line b. Units of production c. Double declining balance Method: Year At acquisition Accumulated Carrying Computation Depreciation Expense Depreciation Amount 2. Evaluate each method in terms of its effect on cash flow, fixed asset turnover ratio, and earnings per share (EPS). Assuming that Bombardier is most interested in reducing taxes and maintaining a high EPS for year 1, which method of depreciation would you recommend to management? Would your recommendation change for year 2? Why or why not?
Bombardier Inc. is one of the largest manufacturers of planes and trains in the world. The company's long-lived assets exceed $12 billion. As a result, depreciation is a significant item on Bombardier's statement of earnings. You are a financial analyst for Bombardier and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life is 13 years, and the estimated residual value is $2,000. The machine has an estimated useful life in productive output of 200,000 units. Actual output was 20,000 in year 1 and 16,000 in year 2. Required: 1. For years 1 and 2 only, prepare a separate depreciation schedule for each of the following alternative methods. Round your computations to the nearest dollar. a. Straight line b. Units of production c. Double declining balance Method: Year At acquisition Accumulated Carrying Computation Depreciation Expense Depreciation Amount 2. Evaluate each method in terms of its effect on cash flow, fixed asset turnover ratio, and earnings per share (EPS). Assuming that Bombardier is most interested in reducing taxes and maintaining a high EPS for year 1, which method of depreciation would you recommend to management? Would your recommendation change for year 2? Why or why not?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Bombardier Inc. is one of the largest manufacturers of planes and trains in the world. The company's long-lived assets exceed $12 billion.
As a result, depreciation is a significant item on Bombardier's statement of earnings. You are a financial analyst for Bombardier and have
been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods
based on a machine that cost $106,000. The estimated useful life is 13 years, and the estimated residual value is $2,000. The machine has
an estimated useful life in productive output of 200,000 units. Actual output was 20,000 in year 1 and 16,000 in year 2.
Required:
1. For years 1 and 2 only, prepare a separate depreciation schedule for each of the following alternative methods. Round your
computations to the nearest dollar.
a. Straight line
b. Units of production
c. Double declining balance
Method:
Year
At acquisition
1
2
Accumulated Carrying
Computation Depreciation Expense Depreciation Amount
2. Evaluate each method in terms of its effect on cash flow, fixed asset turnover ratio, and earnings per share (EPS). Assuming that
Bombardier is most interested in reducing taxes and maintaining a high EPS for year 1, which method of depreciation would you
recommend to management? Would your recommendation change for year 2? Why or why not?
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