On January 3, 2016, B.W. Soffer Inc. paid $224,000 for a computer system. In addition to the basic..

On January 3, 2016, B.W. Soffer Inc. paid $224,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $6,200, $6,700 sales tax, and $3,100 for special installation. Management estimates that the computer will remain in service for five years and have a residual value of $20,000. The computer will process 50,000 documents the first year, decreasing annually by 5,000 during each of the next four years (that is, 45,000 documents in 2017, 40,000 documents in 2018, and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of three depreciation methods (straight-line, units-of-production, and double-diminishing-balance). Requirements 1. Prepare a depreciation schedule for each of the three depreciation methods listed, showing asset cost, depreciation expense, accumulated depreciation, and asset carrying amount. 2. B.W. Soffer Inc. reports to shareholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. Consider the first year B.W. Soffer Inc. uses the computer system. Identify the depreciation method that meets the company s objectives. Discuss the advantages of each depreciation method?

 

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