The following is a note accompanying a financial statement of International Paper Company:
Plant, Property, and Equipment
Plant, Properties, and Equipment are stated at cost lessaccumulated depreciation. For financial reporting purposes, thecompany uses the units-of-production method of depreciating itsmajor pulp and paper mills and certain wood products 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%
• Machinery and 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 isresponsible for selecting these methods?
2. Does the company violate the consistency principle by usingdifferent depreciation methods for its paper mills and woodproducts facilities than it uses for its other plan and equipment?If not, what does the principle of consistency mean? Explain
3. What is the estimated useful life of the machinery andequipment being depreciated with a straight-line deprecation rateof:
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 thestraight-line method?