Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 11, Problem 11.15E
E11-13 Depreciation Methods. Disposal. Kurtis Koal Company, Inc. purchased a new mining machine at a total cost of $900,000 on the first day of its fiscal year. The firm estimates that the machine has a useful life of 6 years or 6,000,000 tons of coal and a residual value of $60,000 at the end of its useful life. The following schedule indicates the actual number of tons of coal mined with the machine per year:
| Year | Tons of Coal |
| 1 | 700,000 |
| 2 | 1,400,000 |
| 3 | 1,600,000 |
| 4 | 1,000,000 |
| 5 | 750,000 |
| 6 | 550,000 |
Required
Prepare the depreciation schedules for the machine assuming that Kurtis Koal used the following methods (each case is independent):
- a. Straight-line method.
- b. Units-of-output method.
- c. Double-declining balance method. (Adjust the depreciation expense in the last year to the necessary amount to arrive at an ending book value equal to the scrap value.)
- d. Kurtis Koal sells the mining machine for $450,000 at the end of Year 3. What is the gain or loss on sale under each of the depreciation methods in parts (a)–(c)?
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Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $110,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. 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…
Chapter 11 Solutions
Intermediate Accounting
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