BF140 Business Financial Concepts: Capstone Project Part 3
Accounting for Long-term Operational Assets
Description:
Congratulations! You have been hired as an accountant by the company HappyDay, which produces dairy products. Your new boss believes that your knowledge will help improve the company’s performance and increase its profitability.
HappyDay is planning to invest $20 million and acquire a new production line at the beginning of Year 3. Also, the company has intents to change the depreciation policy in order to manage the costs of production and income tax expenses better. Your new boss asks you to calculate depreciation expenses using straight-line, double-declining balance and units-of-production methods to determine which of the methods is better.
The new asset is expected to have a 10-year useful life. The total production is estimated at 500,000 tons. With respect to the new asset, HappyDay is expecting to generate the following results in Years 3-5.
Year 3 Year 4 Year 5
Expected amount of production, tons 45,000 65,000 60,000
Net Sales, thousand $ 85,000 120,000 110,000
Expenses (before depreciation and income tax), thousand $ 45,000 80,000 73,000
Income tax rate, % 30 30 30
Answer the following questions:
1. Determine the amount of depreciation expense in each year (Years 3-5) and accumulated depreciation HappyDay would report in the Year 5 financial statements. Use straight-line, double-declining balance and units-of-production methods.
2. Compute HappyDay’s Total Expenses, Income Tax and Net Income in Years 3-5. Prepare the calculations using the depreciation amounts computed according to straight-line, double-declining balance and units-of-production methods.
3. In your opinion, which of the depreciation methods should be used by HappyDay? Explain why.
Submit your original responses to Capstone Project Part 3 in Moodle.
FOR INSTRUCTOR USE ONLY
Grading Rubric
Grading accepts a start value of 100. Points will be deducted for failure to fully complete or meet the stated requirements. 90-100 = Represents work of superior quality (A); 80-89 = Represents work of good to very good quality (B); 70-79 = Represents adequate command of class content (C); 69 and below = Represents work that shows a need for development or improvement (F); 0 = Represents plagiarized work (F).
BF140: Business Financial Concepts (BCF)
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Date:
Capstone Project Part 3
Description of requirements Possible Points Your Points
1. Determine the amount of depreciation expense in each year (Years 3-5) and accumulated depreciation HappyDay would report in the Year 5 financial statements. Use straight-line, double-declining balance and units-of-production methods.
30
2. Determine the amount of depreciation expense in each year (Years 3-5) and accumulated depreciation HappyDay would report in the Year 5 financial statements. Use straight-line, double-declining balance and units-of-production methods. 30
3. In your opinion, which of the depreciation methods should be used by HappyDay? Explain why. 20
Overall content has clarity and adequate supporting details 10
Assignment was submitted by due date 10
TOTAL 100
YOUR SCORE: ________
Instructor Comments: