Thefollowing is a note accompanying a financial statement ofInternational Paper Company:
Plant, Properties, and Equipmentare stated at cost less accumulated depreciation. For financialreporting purposes, the company uses the units-of-production methodof depreciating its major pulp and paper mills and certain woodproducts facilities, and the straight-line method for other plansand equipment.
Annual straight-line depreciationrates for financial reporting purposes are as follows:
• Building2.5 % to 8%
• Machineryand Equipment 5% to 33%
• Woodsequipment 10% to 16%
Fortax purposes, depreciation is computed utilizing acceleratedmethods.
Required:
1. Are thedepreciation methods used in the company's financialstatements by current income tax laws? If not, who is responsiblefor selecting these methods?
2. Does the company violate the consistency principle by using different depreciationmethods for its paper mills and wood products facilities than ituses for its other plan and equipment? If not, what does theprinciple of consistency mean? Explain
3. What is the estimated useful life of the machinery and equipment beingdepreciated with a straight-line deprecation rate of:
i. 5%
ii.33%
4. Who determinesthe useful lives over which specific assets are to bedepreciated?
5. Why do you thinkthe company uses accelerated depreciation methods for income taxpurposes, rather than using the straight-line method?