Objective: The purpose of this assignment is to assess each students ability to calculate depreciation under two different methods and then use the results to make an appropriate business decision.

Problem Data: Beaver Builders, Inc. has just purchased a new fork lift. The purchase price of the equipment is $200,000. The company expects to use the equipment for 4 years and estimates the equipment can be sold at the end of 4 years for $20,000 (its residual value).

The accountant for Beaver Builders is trying to decide which depreciation method to use for this equipment: straight-line or units of production. The foreman for the company estimates that the equipment will be used for a total of 7,000 hours.

The estimated number of hours per year are:

year 1 2,100

year 2 1,800

year 3 1,600

year 4 1,500

Requirement 1: Based on the above information, prepare a schedule showing the amount of depreciation expense and total accumulated depreciation under each method.

Straight-Line Depreciation Method

Units of Production Depreciation Method

Requirement 2: If the companys goal is to maximize expenses and minimize net income in year 1, which depreciation method should the company select?

Requirement 3: Why is it important for a business person to understand the different methods of depreciation?