3. On January 3, 2002, J.B. Weld Co. paid $224,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $6,200, $6,700 sales tax, and $3,100 for a special platform on which to place the computer. J.B. Weld management estimates that the computer will remain in service 5 years and have a residual value of $20,000. The computer will process 50,000 documents the first year, with annual processing decreasing by 5,000 documents during each of the next 4 years (that is, 45,000 documents in 2003, 40,000 documents in 2004; and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of the 3 depreciation methods (straight line, units of production and double declining balance).

a)For each of the generally accepted depreciation methods, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation and asset book value. Sample schedules follow. (25 points)

b)J.B. Weld reports to stockholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. Which depreciation method would J.B. Weld use to accomplish this goal? Explain (5 points)

Straight-Line Depreciation Schedule

Depreciation for the Year

DATE

ASSET COST

DEPRECIATION RATE

DEPRECIABLE COST =

DEPRECIATION EXPENSE

ACCUMULATED DEPRECIATION

ASSET BOOK VALUE

1-03-20X2

$240,000

$240,000

12-31-20X2

12-31-20X3

12-31-20X4

108,000

12-31-20X5

12-31-20X6

20,000

Units-of-Production Depreciation Schedule

Depreciation for the Year

DATE

ASSET COST

DEPRECIATION PER DOCUMENT

NUMBER OF DOCUMENTS =

DEPRECIATION EXPENSE

ACCUMULATED DEPRECIATION

ASSET BOOK VALUE

1-03-20X2

$240,000

$240,000

12-31-20X2

12-31-20X3

12-31-20X4

91,500

12-31-20X5

12-31-20X6

20,000

Total documents

200,000

Double-Declining-Balance Depreciation Schedule
Depreciation for the Year
DATE	ASSET COST	DDB RATE	ASSET BOOK VALUE =	DEPRECIATION EXPENSE	ACCUMULATED DEPRECIATION	ASSET BOOK VALUE
1-03-20X2	$240,000					$240,000
12-31-20X2
12-31-20X3
12-31-20X4
12-31-20X5
12-31-20X6				11,104	220,000	20,000