Measure and account for the cost of a plant asset; measure depreciation by three methods; identify the cash flow advantage of accelerated depreciation for tax purposes
Response to the following problem:
On January 4, 2014, Glennside Co. paid $235,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $1,100, $6,200 sales tax, and $37,200 for a special platform on which to place the computer. Glennside management estimates that the computer will remain in service for five years and have a residual value of $24,500. The computer will process 35,000 documents the first year, with annual processing decreasing by 2,500 documents during each of the next four years (that is, 32,500 documents in 2015; 30,000 documents in 2016; and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of the three depreciation methods (straight-line, units-of-production, and double-declining-balance).