On January 5, 2017, Priestly Corp. paid $438,000 for equipment used in manufacturing computer equipment. In addition to the basic purchase price, the business paid $2,200 transportation charges, $600 insurance for the goods in transit, $35,200 provincial sales tax, and $20,000 for a special platform on which to place the equipment in the plant. Priestly Corp.'s owner estimates that the equipment will remain in service for four years and have a residual value of $10,000. The equipment will produce 85,000 units in the first year, with annual production decreasing by 10,000 units during each of the next three years (that is, 75,000 units in Year 2, 65,000 units in Year 3, and so on). In trying to decide which amortization method to use, owner Janice Priestly has requested an amortization schedule for each of three generally accepted amortization methods: straight line, UOP, and DDB.
Required
1. For each of the amortization methods listed above, prepare an amortization schedule showing asset cost, amortization expense, accumulated amortization, and asset book value. Assume a December 31 year end.
2. Priestly Corp. prepares financial statements for its creditors using the amortization method that maximizes reported income in the early years of asset use. Identify the amortization method that meets the business's objective.