Strong Metals Inc. purchased a new stamping machine at the beginning of the year.
Strong estimated the useful life to be five years and estimated the productive life to be 300,000 units.

To do your analysis, you are provided with the following Tableau Dashboard:

Tableau Dashboard Activity 8-1 Part 2

Strong Metals Inc. purchased a new stamping machine at the beginning of the year. Strong estimated the residual value to be $50,000, the useful life to be five years, and the productive life to be 300,000 units. You are hired as a consultant to assist Strong's management with understanding the impact of each depreciation method to assist the management team in selecting a method to apply for the new machine.

To do your analysis, review the Depreciation Expense per Year tab of the Tableau Dashboard.
Required:

1. If management wants to maximize reported net income in Year 1, which method should the company select?
2. The Internal Revenue Code and GAAP allow the manager to choose different methods for tax accounting and financial reporting purposes.
   1. Which method would result in the lowest taxes paid in Year 1?
   2. In Year 3?
3. Assume that all of the indicated methods are acceptable for tax accounting purposes. Based on the least and the latest rule, which method would you recommend that management adopts for tax purposes?
4. What is total depreciation expense over the five years under each method?
5. Which method provides for the most consistent total expenses across the five-year period?
6. Assuming a 25 percent tax rate, what would be the difference in taxes paid in Year 4 between applying the double-declining-balance method compared to applying the straight-line method?

Data:

Actual Units Expected to Be Produced per Year

Year 1: 70,000 units

Year 2: 67,000 units

Year 3: 50,000 unites

Year 4: 4,73,000 units

Year 5: 40,000 units

Total Cost of Machine

Depreciable Cost: 900,000

Residual value: 50,000

Total amount: 950,000

Depreciation Expense per Year per Method

Straight Line

Year 1 Depreciation Expense: 180,000

Year 2 Depreciation Expense: 180,000

Year 3 Depreciation Expense: 180,000

Year 4 Depreciation Expense: 180,000

Year 5 Depreciation Expense: 180,000

Double Declining Balance

Year 1 Depreciation Expense: 380,000

Year 2 Depreciation Expense: 228,000

Year 3 Depreciation Expense: 136,800

Year 4 Depreciation Expense: 82,080

Year 5 Depreciation Expense: 73,120

Units of Production

Year 1 Depreciation Expense: 210,000

Year 2 Depreciation Expense: 201,000

Year 3 Depreciation Expense: 150,000

Year 4 Depreciation Expense: 219,000

Year 5 Depreciation Expense: 210,000

Transcribed Image Text:

Depreciation Expense per Year per Method $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 Depreciation Expense Depreciation Expense per Year per Method $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 Depreciation Expense

Answer rating: 100% (QA)

Answer Total depreciation expense over the five years under each method Depreciation expense Year St... View the full answer