Question: The following is a note accompanying a recent financial statement

The following is a note accompanying a recent financial statement of International Paper Company :
Plant, Properties, and Equipment
Plant, properties, and equipment are stated at cost less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills, and the straight-line method is used for other plants and equipment. Annual straight-line depreciation rates are, for buildings—2½ percent to 8½ percent, and for machinery and equipment—5 percent to 33 percent.
a. Are the depreciation methods used in the company’s financial statements determined by cur-rent income tax laws? If not, who is responsible for selecting these methods? Explain.
b. Does the company violate the consistency principle by using different depreciation methods for its paper mills and wood products facilities than it uses for its other plant and equipment?
If not, what does the principle of consistency mean? Explain.
c. What is the estimated useful life of the machinery and equipment being depreciated with a straight-line depreciation rate of:
1. 5 percent.
2. 33 percent (round to the nearest year).
Who determines the useful lives over which specific assets are to be depreciated?
d. Why do you think the company uses accelerated depreciation methods for income tax pur-poses, rather than using the straight-line method?

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  • CreatedApril 17, 2014
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