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Burnitz Manufacturing Company was organized on January 1, 2025. During 2025, it has used in its internal reports the straight-line method of depreciating its plant
Burnitz Manufacturing Company was organized on January 1, 2025. During 2025, it has used in its internal reports the straight-line method of depreciating its plant assets. On November 8, you are having a conference with Burniz's officers to discuss the depreciation method to be used for income tax and external (GAAP) reporting James Bryant, president of Bumitz, has suggested the use of a new method, which he feels is more suitable than the straight-line method for the needs of the company during the period of rapid expansion of production and capacity that he foresees Following is an example in which the proposed method is applied to a foxed asset with an onginal cost of $248,000, an estimated useful life of 5 years, and a salvage value or approximatery so, vuU The president favors the new method becauso he has heard that 1. It will increase the funds rocovered during the years near the end of the assets' usetul lives when maintenance and replacement disbursements are high 2. It will result in increased write-otfs in later years and thereby will reduce taxsin the president wants your adviee on the following issues. (1) Do depreciation chat ges recover or create fands? Fxplain. (2) Assume that the Intermal Revenue Gervice accepts the proposed depreciation method in this case. If the proposed method were used for stockholder and tax reportinge purpesas, how wethd it affect the availabitity of cash flows generafed by operations
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