Reference no: EM131293002

On january 3 2015, Azul Enterprises, Inc, paid $281,000 for equipment used in manufacuring automotive supplies. In addition to the basic purchase proce, the company paid $700 transportation charges, $300 insurance for the equipment while in tansit, $11,000 sales tax, and $2,000 for a special platform on which to place the equipment in the plant. Azul Enterprises, Inc, management estimates that the equipment will remain in serivce for the 5 years and have a risidual value of $35,000. The equipment will produce 60,000 units for the first year, with annual production decreasing by 5,000 units during each of the next 4 years (55,000 units in year 2, 50,000 units in year 3 and so on for a total of 250,000 units). In trying to decide which depreciation method to use, Azul 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 depreciaiton 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) Azul 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 Azul Enterprises, Inc, uses the equipment. Identify the depreciation methods that meet Azul Enterprises objectives, assuming the income tax authorities permit the use of any method.

3) Show how Azul Enterprises, Inc, would report equipment on the December 31, 2015, balance sheet for each depreciation method.

Template on how to enter the answers

Requirement 1: Straight-Line Depreciation Schedule Depreciation for the year

Date Asset cost Depreciation rate Depreciable cost Depreciaiton expense Accumulated Depreciation Book value

Any Computations:

Units-of-production Depreciaiton Schedule Depreciation for the year

Date Asset cost Depreciation per unit Number of units Depreciation Expense Accumuated Depreciation Book Value

Any Computations:

Double-Declining-Balance Depreciation Schedule Depreciation for the year

Date Asset Cost DDB Depreciation rate Book Value Depreciation Expense Accumulated Depreciation Book Value

Any Computations:

Requirement 2 is to identify the method

Requirement 3

Method of deprecation

Straight-line Units of Production Declinging Balance