The following is a note accompanying a financial statement ofInternational Paper Company:
Plant, Property, and Equipment
Plant, Properties, and Equipment are stated at cost lessaccumulated depreciation. For financial reporting purposes, the company uses theunits-of-production method of depreciating its major pulp and paper mills and certain woodproducts facilities, and the
straight-line method for other plans and equipment. Annual straight-line depreciation rates for financial reportingpurposes are as follows: Building 2.5 % to 8% Machineryand Equipment 5% to 33% Woods equipment 10%to 16% For tax purposes, depreciation is computed utilizing acceleratedmethods.
Required:
1. Are the depreciation methods used in the company'sfinancial statements by current income tax laws? If not, who is responsible for selectingthese methods?
2. Does the company violate the consistency principle byusing different depreciation methods for its paper mills and wood productsfacilities than it uses for its other plan and equipment? If not, what does the principleof consistency mean? Explain
3. What is the estimated useful life of the machinery andequipment being depreciated with a straight-line deprecation rate of:
i. 5%
ii. 33%
4. Who determines the useful lives over which specific assetsare to be depreciated?
5. Why do you think the company uses accelerated depreciationmethods for income tax purposes, rather than using the straight-line method?