Issues Involving Alternative Depreciation MethodsIssues Involving Alternative Depreciation Methods

Sal's Salon purchased new furnituSal's Salon purchased new furniture for its store onre for its store onJanuaryJanuary1, 2011, 2011. The furniture is expected to have a 10-year life and no residual value. The following expenditures were associated with the purchase:1. The furniture is expected to have a 10-year life and no residual value. The following expenditures were associated with the purchase:

Cost of the furnitureCost of the furniture$10,000$10,000

Freight chargesFreight charges350350

Sales taxesSales taxes600600

Installation of furnitureInstallation of furniture5050

Cost to repair furniture damaged during installationCost to repair furniture damaged during installation500500

InstructionsInstructions

**Compute deprecCompute depreciation expense for the years 201iation expense for the years 20111through 201through 2014 under each depreciation method listed below:4 under each depreciation method listed below:

**Straight-line;Straight-line;

**200% declining-balance.200% declining-balance.

**Sal's Salon has two conflicting objectives. Management wants to report the highest possible earnings in its financial statements, yet it also wants to minimize its taSal's Salon has two conflicting objectives. Management wants to report the highest possible earnings in its financial statements, yet it also wants to minimize its taxable income reported to thexable income reported to thetax bureautax bureau. Explain how both of these objectives can be met.. Explain how both of these objectives can be met.

**Which of the depreciation methods applied in partWhich of the depreciation methods applied in partaaresulted in the lowest reporresulted in the lowest reported book value at the end of 201ted book value at the end of 2014? Is book value an estimate of an asset's fair market value? Explain.4? Is book value an estimate of an asset's fair market value? Explain.

**Assume that Sal's Salon sold the old furniture that was being replaced. The old furniture had originally cost $6,000. Its book value at the time of the sale was $500. Record the sale of the old furnitureAssume that Sal's Salon sold the old furniture that was being replaced. The old furniture had originally cost $6,000. Its book value at the time of the sale was $500. Record the sale of the old furniture(making accounting entries)(making accounting entries)under the following conditions:under the following conditions:

**The furniture was sold for $900 cash.The furniture was sold for $900 cash.

**The furniture was sold for $200 cash.The furniture was sold for $200 cash.