P7-65A. (Learning Objective 1: Explaining the concept of depreciation) The board of directors of Crystal Structures, Inc., is reviewing the 20X6 annual report. A new board member - a wealthy woman with little business experience-questions the company accountant about the depreciation amounts. The new board member wonders why depreciation expense has decreased from $240,000 in 20X4 to $224,000 in 20X5 to $216,000 in 20X. She states that she could understand the decreasing annual amounts if the company had been disposing of properties each year, but that has not occurred. Further, she notes that growth in the city is increasing the values of company properties. Why is the company recording depreciation when the property values are increasing? P7-66A. (Learning Objectives 1, 2,3: Computing depreciation by three methods; identifying the cash-flow advantage of accelerated depreciation for tax purposes; subsequent costs) On January 9, 20X6, J. T. Orlando Co. paid $240,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $2,000,$8,000 sales tax, and $30,000 for a special platform on which to place the computer. J. T. Orlando management estimates that the computer will remain in service for five years and have a residual value of $20,000. The computer will process 30,000 documents the first year, with annual processing decreasing by 2,500 documents during each of the next four years (that is, 27,500 documents in year 20X7; 25,000 documents in year 20X; ; and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of the three depreciation methods (straight-line, units-of-production, and double-declining-balance). Requirements 1. For each of the generally accepted depreciation methods, prepare a depreciation schedule showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 2. J. T. Orlando reports to shareholders and creditors in the financial statements using the depreciation method that maximizes reported income in the early years of asset use. For income tax purposes, the company uses the depreciation method that minimizes income tax payments in those early years. Consider the first year J. T. Orlando Co. uses the computer. Identify the depreciation methods that meet Orlando's objectives, assuming the income tax authorities permit the use of any of the methods