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 7, 2014, Plummer Co. paid $240,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $1,400, $6,500 sales tax, and $29,100 for a special platform on which to place the computer. Plummer's management estimates that the computer will remain in service for five years and have a residual value of $25,000. The computer will process 50,000 documents the first year, with annual processing decreasing by 2,500 documents during each of the next four years (that is, 47,500 documents in year 2015; 45,000 documents in year 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).