This problem is taken from Problem 3.10 in the recommended course text, which states: Answer the following questions about depreciation.

a. In one or two sentences, explain the purpose of putting depreciation into an income statement.

b. If an asset has a depreciation period of 12 years, an original value of $13.45 M, and an estimated salvage value of $250 k, what is its accumulated depreciation (straight-line) at the end of the fifth year?

c. An asset has an original purchase value of $12 M, a depreciation period of 6 years, and an estimated salvage value of zero. What is the entry in Other Income if it is sold for a salvage value of $6 M after 4 years of operating the piece of equipment? What about the case if the salvage value is $4 M? What about the case if the salvage value is $2 M? What about the case if the salvage value is zero?

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d. Assume an asset has an original value of $5 M, a depreciation period of 5 years, and no salvage value. If it is sold after 3 years for $1 M, then there is $1 M in non-depreciated value that must be reflected in the income statement as other income. Is this true or false? If true, is the entry in other income a loss or a gain? In hindsight (that is, looking back in time), we the operating income for the business overstated or understated for the 3 year period in which the piece of equipment was operated?