OnJanuary 3​,2020​,GagneInc. paid $320,000 for a computer system. In addition to the basic purchase​ price, the company paid a setup fee of$2,500​,$6,400sales​ tax, and $21,100 for special installation. Management estimates that the computer will remain in service for five years and have a residual value of $20,000. The computer will process 50,000 documents the first​ year, decreasing annually by 5,000 during each of the next four years​ (that is 45,000 documents in 2021​,40,000 documents is 2022​, and so​ on). In trying to decide which depreciation method to​ use, the company president has requested a depreciation schedule for each of three depreciation methods​ (straight-line, units-of-production, and​ double-diminishing-balance).       1.Before completing the​ straight-line depreciation​ schedule, calculate the​ straight-line depreciation rate.​ First, select the labels for the formula and then compute the rate. ​(Round the rate to two decimal​ places.)   2. Complete the​ Straight-Line Depreciation Schedule. Begin by filling out the schedule through 2021​, and then complete the schedule by entering the amounts through 2024. ​(Enter the rate to two decimal places. Round all other amounts to the nearest whole​ dollar.)   3. Before completing the​ units-of-production depreciation​ schedule, calculate the depreciation expense per unit. Select the labels for the formula and then compute the rate. ​(Round the unit rate to the nearest​ cent.)   4.Complete the​ Units-of-Production Depreciation Schedule. Begin by filling out the schedule through 2021​, and then complete the schedule by entering the amounts through 2024. ​(Enter depreciation per unit to the nearest cent. Round all other amounts to the nearest whole​ dollar.)   5.Before completing the​ double-diminishing-balance schedule, calculate the​ double-diminishing-balance rate. Select the labels for the formula and then compute the rate. ​(Round the rate to two decimal​ places.)   6.Complete the​ Double-Diminishing-Balance Depreciation Schedule. Begin by filling out the schedule through 2021​,and then complete the schedule by entering the amounts through 2024. ​(Enter the rate to two decimal places. Round all other amounts to the nearest whole​ dollar.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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OnJanuary 3​,2020​,GagneInc. paid $320,000 for a computer system. In addition to the basic purchase​ price, the company paid a setup fee of$2,500​,$6,400sales​ tax, and $21,100 for special installation. Management estimates that the computer will remain in service for five years and have a residual value of $20,000.
The computer will process 50,000 documents the first​ year, decreasing annually by 5,000 during each of the next four years​ (that is 45,000 documents in 2021​,40,000 documents is 2022​, and so​ on). In trying to decide which depreciation method to​ use, the company president has requested a depreciation schedule for each of three depreciation methods​ (straight-line, units-of-production, and​ double-diminishing-balance).
 
 
 
1.Before completing the​ straight-line depreciation​ schedule, calculate the​ straight-line depreciation rate.​ First, select the labels for the formula and then compute the rate. ​(Round the rate to two decimal​ places.)
 
2. Complete the​ Straight-Line Depreciation Schedule. Begin by filling out the schedule through 2021​, and then complete the schedule by entering the amounts through 2024.
​(Enter the rate to two decimal places. Round all other amounts to the nearest whole​ dollar.)
 
3. Before completing the​ units-of-production depreciation​ schedule, calculate the depreciation expense per unit. Select the labels for the formula and then compute the rate. ​(Round the unit rate to the nearest​ cent.)
 
4.Complete the​ Units-of-Production Depreciation Schedule. Begin by filling out the schedule through
2021​, and then complete the schedule by entering the amounts through 2024.
​(Enter depreciation per unit to the nearest cent. Round all other amounts to the nearest whole​ dollar.)
 
5.Before completing the​ double-diminishing-balance schedule, calculate the​ double-diminishing-balance rate. Select the labels for the formula and then compute the rate. ​(Round the rate to two decimal​ places.)
 
6.Complete the​ Double-Diminishing-Balance Depreciation Schedule. Begin by filling out the schedule through
2021​,and then complete the schedule by entering the amounts through 2024. ​(Enter the rate to two decimal places. Round all other amounts to the nearest whole​ dollar.)
 

 

1. Prepare a depreciation schedule for each of the three depreciation methods
listed showing asset cost, depreciation expense, accumulated depreciation,
and asset carrying amount.
2. Gagne Inc. reports to shareholders and creditors in the financial statements
using the depreciation method that maximizes reported income in the early
years of asset use. Consider the first year Gagne Inc. uses the computer
system. Identify the depreciation method that meets the company's objectives.
Discuss the advantages of each depreciation method.
Transcribed Image Text:1. Prepare a depreciation schedule for each of the three depreciation methods listed showing asset cost, depreciation expense, accumulated depreciation, and asset carrying amount. 2. Gagne Inc. reports to shareholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. Consider the first year Gagne Inc. uses the computer system. Identify the depreciation method that meets the company's objectives. Discuss the advantages of each depreciation method.
Requirement 2. Gagne Inc. reports to shareholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. Consider
the first year Gagne Inc. uses the computer system. Identify the depreciation method that meets the company's objectives. Discuss the advantages of each depreciation method.
method, which produces the lowest depreciation for that year.
The depreciation method that maximizes reported income in the first year of the computer's life is the
The straight-line method allocates the cost of the asset
over its estimated useful life.
The units-of-production method would allocate
of the cost of the asset to each of the documents produced. This method would match
The double-diminishing-balance method would allocate
the estimated life is
than anticipated due to a
produces the highest depreciation for the year.
useful and competitive stage. If
of the cost of the asset to the
of its useful life when the computer would be at its
efficient computer being developed, this would be the most appropriate depreciation method. This method would minimize income as it
Transcribed Image Text:Requirement 2. Gagne Inc. reports to shareholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. Consider the first year Gagne Inc. uses the computer system. Identify the depreciation method that meets the company's objectives. Discuss the advantages of each depreciation method. method, which produces the lowest depreciation for that year. The depreciation method that maximizes reported income in the first year of the computer's life is the The straight-line method allocates the cost of the asset over its estimated useful life. The units-of-production method would allocate of the cost of the asset to each of the documents produced. This method would match The double-diminishing-balance method would allocate the estimated life is than anticipated due to a produces the highest depreciation for the year. useful and competitive stage. If of the cost of the asset to the of its useful life when the computer would be at its efficient computer being developed, this would be the most appropriate depreciation method. This method would minimize income as it
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