Smart Hardware purchased new shelving for its store on April 1, 2009. 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 $12,000
Freight charges 520
Sales taxes 780
Installation of shelving 2,700
Cost to repair shelf damaged during installation 400

Instructions

a. Compute depreciation expense for the years 2009 through 2012 under each depreciation method listed below:

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. Smart 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.

c. Which of the depreciation methods applied in part a resulted in the lowest reported book value at the end of 2012? Is book value an estimate of an asset's fair value?

d. Assume that Smart 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 $1,200 cash.
2. The shelving was sold for $200 cash.

Answer rating: 100% (QA)

Answer o all parts are given below Ans A Initial Recognition of the Asset Asset should be recognised ... View the full answer