Smart Hardware purchased new shelving for its store on April 1, 2011. The shelving is expected to have a 20-year life and no residual value. The following expenditures were associated with the purchase:
- Cost of shelving $12,000
- Freight Charges $ 520
- Sales Taxes $ 780
- Installation of shelving $ 2,700
Cost to repair shelf damaged during installation $400
a. Compute depreciation expense for the years 2011 through 2013 under each depreciation method listed below:.
1. Straight-line, with frational years rounded to the nearest whole month.
2. 200 percent declining-balance, using the half-year convention.
3. 150 percent declining-balance, using the half-year convention.
b. Smart Hardware has two conflicting objectives. Management wants to report the highest possible earning in the financial statements, yet it also wants to minimize its taxable income reported to the IRS. Explain both of these objectives can be met.
c. Which of the depreciation methods applied in part a resulted in the lowest reported book value at the end of 2014? Is book value an estimate of an asset's fair value? Explain.