On January 2, 20X1, St. Paul Vision Center purchased equipment at a cost of $63,000. Before placing.

On January 2, 20X1, St. Paul Vision Center purchased equipment at a cost of $63,000. Before placing the equipment in service, St. Paul spent $2,200 for special chips, $800 for a platform, and $4,000 to customize the equipment. St. Paul management estimates that the equipment will remain in service for 6 years and have a residual value of $16,000. The equipment can be expected to process 18,000 examinations in each of the first 4 years and 14,000 tests in each of the next 2 years. In trying to decide which depreciation method to use, Lana Rich, the general manager, requests a depreciation schedule for each method (straight-line, units-of-production, and double-declining- balance). Required 1. Prepare a depreciation schedule for each of the depreciation methods, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 2. St. Paul reports to creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. For income tax purposes, however, the company uses the depreciation method that minimizes income-tax payments in those early years. Consider the first year that St. Paul uses the equipment. Identify the depreciation methods that meet the general manager s objectives, assuming the income tax authorities would permit the use of any of the methods. 3. Cash provided by operations before income tax is $100,000 for the equipment s first year. The income tax rate is 35%. For the

 

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