1. Which GAAP requires the use of depreciation for assets that have useful lives beyond 1 year? Explain why this is the case.
2. Explain the four steps in the depreciation process.
3. The York City Hospital has just acquired new equipment. The equipment cost $4,250,000, and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The equipment is expected to have a 10-year useful life and a salvage value of 10% (i.e., $425,000). Calculate the first 5 years of depreciation, using SL, DDB, and SYD.
4. A new medical practice purchases computer equipment that cost $15,000, to be used for medical billing. In addition, the practice purchases billing software that cost $5,000. Both the computer equipment and the software are expected to have 3-year useful lives and no salvage value. Calculate the 3 years of depreciation, using 3L, DDB, and SYD.
5. The New Hospital has raised money for a new oncology wing. The hospital has also acquired medical diagnostic equipment t what cost $500,000. In addition, the hospital paid $15,000 to ship the equipment from the manufacturer and $40,000 to install the equipment. The equipment is expected to have a 6-year useful life and a $30,000 salvage value. Calculate the 6 years of depreciation, using SL, DDB, and SYD.
6. For-profit organizations can use different methods for reporting depreciation to owners and to the government (for tax purposes). What is the practical effect of this allowance?