Page 425 PROBLEM 9.2A Comparison of Straight-Line and Accelerated Methods L09-3.0L09-5 Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $108,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $8,000. The company reports on a calendar year basis. Instructions a. Prepare a complete depreciation schedule, beginning with the current year, under each of the following methods listed (assume that the halfyear convention is used). 1. Straight-line 2.200 percent declining-balance. 3. 150 percent declining-balance, switching to straight-line when that maximizes the expense. b. Which of the three methods computed in part a is most common for financial reporting purposes? Explain. c. Assume that Swanson & Hiller sells the machine on December 31 of the fourth year for $29,000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part a. Does the gain or loss reported in the company's income statement have any direct cash effects? Explain. PROBLEM 9.4A Disposal of Plant Assets sa L09-5 During the current year, Hitchcock Developers disposed of plant assets in the following transactions. Feb. 10 Office equipment costing $24,000 was given to a scrap dealer at no charge. At the date of disposal, accumulated depreciation on th Hitchcock sold land and a building to Claypool Associates for $900,000. receiving S100,000 cash and a 5-year, 9 percent note rece Aug. 15 Hitchcock traded in an old truck for a new one. The old truck had cost $26,000, and its accumulated depreciation amounted to S1: Oct. 1 Hitchcock traded in its old computer system as part of the purchase of a new system. The old system had cost $15.000, and its acel Apr. 1 Instructions a. Prepare journal entries to record each of the disposal transactions. Assume that depreciation expense on each asset has been Page 426 recorded up to the date of disposal. Thus, you need not update the accumulated depreciation figures stated in the problem, b. Will the gains and losses recorded in part a affect the gross profit reported in Hitchcock's income statement? Explain. c. Explain how the financial reporting of gains and losses on plant assets differs from the financial reporting of unrealized gains and losses on marketable securities discussed in Chapter 7