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Problem: The Pablo Paving Company purchased a new bulldozer for \$ 250,500 at the beginning of Year 1.Â  It is estimated that the residual value will be 25,000 and have a useful life of 6 years. The Bulldozer is expected to last 10,000 hours. In year 1 it was used 1,800 hours, in year 2 it was used 2000 hours; year 3, 2,500 hours; 1,500 hours in year 4; 1,200 hours in year 5; and 1,000 hours in year 6.

Required:

1) Compute the annual depreciation and carrying value for the new crane for each of the 6 years under each of the following methods: a) Straight-line, b) production, c) double declining- balance.Â  Round percentage to 2 decimal places (for example, like this:Â  22.22 %).

2) If the crane is sold for \$ 250,000 at the end of year 3, what is the gain/loss under each of the three methods?

3) How does each method affect the firmâ€™s profitability? Please explain this as clearly as possible.

For requirement 1, set up the problem like this:

Method of Depreciation: a) Straight line

Depreciable amount:

YearÂ  Â Â Â Â Annual Depreciation ExpenseÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Accumulated Depreciation Â Â Â Â Â Â Â Â carrying valueÂ Â Â Â Â Â Â Â Â Â

Method of Depreciation: b) Production MethodÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â page 2 of 2

Depreciable amount:

YearÂ Â Â Â  Â Â Â Â Â Â Â Â Â Â Â Â Annual DepreciationÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Accumulated DepreciationÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Carrying Value

Method of Depreciation: c) Double Declining Balance

Depreciable amount: 33.33%

YearÂ Â Â Â Â Â Â  Â Â Â Â Â Â Â Â Â Â Â Annual DepreciationÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Accumulated DepreciationÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â  Carrying Value

For requirement 2, set up the problem like this:

Year 3Â Â Â Â Â Â  Â Accumulated DepreciationÂ Â Â Â Â Â Â Â Â Â  Carrying ValueÂ Â Â Â Â Â Â Â  Selling PriceÂ Â Â Â Â Â Â  Gain/Loss

Method a) Method b) Method c) Item 3)

Problem: The Pablo Paving Company purchased a new bulldozer for \$ 250,500 at the beginning of Year 1.
It is estimated that the residual value will be 25,000 and have a useful life of 6 years. The Bulldozer is
expected to last 10,000 hours. In year 1 it was used 1,800 hours, in year 2 it was used 2000 hours; year 3,
2,500 hours; 1,500 hours in year 4; 1,200 hours in year 5; and 1,000 hours in year 6.
Required:
1) Compute the annual depreciation and carrying value for the new crane for each of the 6 years under
each of the following methods: a) Straight-line, b) production, c) double declining- balance. Round
percentage to 2 decimal places (for example, like this: 22.22 %).
2) If the crane is sold for \$ 250,000 at the end of year 3, what is the gain/loss under each of the three
methods?
3) How does each method affect the firmâ€™s profitability? Please explain this as clearly as possible.
For requirement 1, set up the problem like this:
Method of Depreciation: a) Straight line
Depreciable amount: 16.67%
Year Annual Depreciation Expense Accumulated Depreciation carrying value Method of Depreciation: b) Production Method page 2 of 2 Depreciable amount:
Year Annual Depreciation Accumulated Depreciation Carrying Value Method of Depreciation: c) Double Declining Balance
Depreciable amount: 33.33%
Year Annual Depreciation Accumulated Depreciation Carrying Value For requirement 2, set up the problem like this:
Year 3 Accumulated Depreciation Method a) Method b) Method c) Item 3) Carrying Value Selling Price Gain/Loss

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This question was answered on: Sep 05, 2019

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Sep 05, 2019

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