PROBLEM 9.3A Issues Involving Alternative Depreciation Methods O LO9-1, LO9-2, LO9-3, L09-5 Hills Hardware purchased new shelving for its store on April 1, 2021. 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 Freight charges $12,000 520 Sales taxes 780 Installation of shelving Cost to repair shelf damaged during installation 2,700 400

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PROBLEM 9.3A Issues Involving Alternative Depreciation Methods O LO9-1, L LO9-2, O LO9-3, LO9-5
Hills Hardware purchased new shelving for its store on April 1, 2021. 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
Freight charges
Sales taxes
$12,000
520
780
Installation of shelving
Cost to repair shelf damaged during installation
2,700
400
Transcribed Image Text:PROBLEM 9.3A Issues Involving Alternative Depreciation Methods O LO9-1, L LO9-2, O LO9-3, LO9-5 Hills Hardware purchased new shelving for its store on April 1, 2021. 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 Freight charges Sales taxes $12,000 520 780 Installation of shelving Cost to repair shelf damaged during installation 2,700 400
Instructions
a. Compute depreciation expense for the years 2021 through 2024 under each depreciation method listed as follows.
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. Hills Hardware has two conflicting objectives. 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 applied in part a will result in the lowest reported book value at the end of 2024? Is
book value an estimate of an asset's fair value? Explain.
d. Assume that Hills 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 $1,100 cash.
2. The shelving was sold for $175 cash.
Transcribed Image Text:Instructions a. Compute depreciation expense for the years 2021 through 2024 under each depreciation method listed as follows. 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. Hills Hardware has two conflicting objectives. 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 applied in part a will result in the lowest reported book value at the end of 2024? Is book value an estimate of an asset's fair value? Explain. d. Assume that Hills 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 $1,100 cash. 2. The shelving was sold for $175 cash.
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