On January 3, 2016, Grey Enterprises, Inc., paid $280,600 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $500 transportation charges, $300 insurance for the equipment while in transit, $12,100 sales tax, and $1,500 for a special platform on which to place the equipment in the plant. Grey Enterprises, Inc., management estimates that the equipment will remain in service for five years and have a residual value of $35,000. The equipment will produce 60,000 units the first year, with annual production decreasing by 10,000 units during each of the next four years (i.e., 50,000 units in year 2, 40,000 units in year 3, and so on for a total of 200,000 units). In trying to decide which depreciation method to use, Grey Enterprises, Inc., requested a depreciation schedule for each of the three depreciation methods (straight-line, units-of-production, and double-declining-balance).

Requirements

1. For each depreciation method, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation, and asset book value for each year of the asset's life. For the units-of-production method, round depreciation per unit to three decimal places.

2. Grey Enterprises, Inc., prepares financial statements using the depreciation method that reports the highest income in the early years of asset use. For income tax purposes, the company uses the depreciation method that minimizes income taxes in the early years. Consider the first year Grey Enterprises, Inc., uses the equipment. Identify the depreciation methods that meet Grey Enterprises' objectives, assuming the income tax authorities permit the use of any method.

3. Show how Grey Enterprises, Inc., would report equipment on the December 31, 2016, balance sheet for each depreciation method?