Question 5

Hakodat Manufacturing Company was organized January 1, 2015. During 2015, it has used in its reports to management the straight-line method of depreciating its plant assets. On November 8, you are having a conference with Hakodat's officers to discuss the depreciation method to be used for income tax and shareholder reporting. Tao Chen, president of Hakodat, has sug- gested 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 fixed asset with an original cost of 248,000, an estimated useful life of 5 years, and a residual value of approximately 8,000 (amounts in thousands).

Accumulated Years of Depreciation Book Value Life Fraction Depreciation at End at End Year Used Rate Expense of Year of Year 1/15 V16,000 V 16,000 V232,000 2/15 32,000 48,000 200,000 3/15 48,000 96,000 152,000 4/15 64,000 160,000 88,000 5/15 80,000 240,000 8,000