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Chris Johnson
04-20-2006, 10:46 AM
I am working on finishing my bachelor's degree with an accounting major and this problem is on a practice exam.

"Vince's Woodworking purchased a wood lathe on January 1, 2001, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Vince's uses straight-line depreciation. At December 31, 2003, Vince estimated the lathe to have a remaining life of three years with no residual value. For the year ended December 31, 2003, Vince would report depreciation expense of:"

Is it just me or did vince get ripped off. A top of the line grizzly only costs about $1500. Also if you did buy a $45000 lathe, shouldn't it last more than 3 years.:confused: :confused: :confused: Just something to think about

Ian Barley
04-20-2006, 10:48 AM
I am working on finishing my bachelor's degree with an accounting major and this problem is on a practice exam.

"Vince's Woodworking purchased a wood lathe on January 1, 2001, at a cost of $45,000. At the time of purchase, the lathe was expected to have a five-year economic life and a residual value of $3,000. Vince's uses straight-line depreciation. At December 31, 2003, Vince estimated the lathe to have a remaining life of three years with no residual value. For the year ended December 31, 2003, Vince would report depreciation expense of:"

Is it just me or did vince get ripped off. A top of the line grizzly only costs about $1500. Also if you did buy a $45000 lathe, shouldn't it last more than 3 years.:confused: :confused: :confused: Just something to think about

If Vince needs to buy any other equipment - I have some special deals for him

Ken Fitzgerald
04-20-2006, 10:49 AM
Sounds to me like Vince is awfully hard on equipment!:eek: :D

tod evans
04-20-2006, 11:57 AM
vince may have gotten a real deal! .02 tod

http://www.factorynew.com/detail.aspx?recnum=LC-300031&CatID=LC&MachType=COPY+LATHE&pos=330

Rich Tesoroni
04-20-2006, 12:06 PM
Is the answer $7,050?
Rich

Russ Filtz
04-20-2006, 12:41 PM
Not a CPA, but I would guess he needs to stick with the regular depreciation of $8400 for thast year, then start his new 3-yr depreciation of $6600 in 2004?

Mark Patoka
04-20-2006, 12:53 PM
Been a few years since I've had an accounting type class but I came up with the same calculations as Russ. Or is there some other little accountants rule we don't know about that says differently?

Lee DeRaud
04-20-2006, 12:55 PM
Vince is so deep in the Vortex, it'll take an IRS auction to get him out.:eek:

Michael Ballent
04-20-2006, 12:56 PM
I think Vince needs to find a new profession if his $45K lathe is only going to last 3 years... Imagine what his car must look like after 6 months ;)

Doyle Alley
04-20-2006, 12:56 PM
Not a CPA, but I would guess he needs to stick with the regular depreciation of $8400 for thast year, then start his new 3-yr depreciation of $6600 in 2004?

I believe you are correct - if you are talking about GAAP depreciation. If you are taking about TAX depreciation, I calculated it a little differently. $8400 is his 2003 expense, but I think you missed on the 2004. My calc goes like this.

Cost - 45,000
Less salvage - 3000
Original depreciable basis - 42000
Divided by 5 years = 8400.
2001 depr = 4200 (remember that he has to assume a mid-year convention).
2002 depr = 8400
2003 depr = 8400
Total depr to date = 21000.
New basis = 45000 less 21000 or 24000.
Divided by 3 years with no salvage = 8000 per year for '04, '05, and 06.

For GAAP depreciation, I don't believe he has to assume the mid-year convention but for tax he does. I passed the CPA exam many years ago, so I'm a little rusty.

Tyler Howell
04-20-2006, 1:05 PM
If Vince would stick to flat work instead of that Spin Meth he'd be much happier and richer;)

Vaughn McMillan
04-20-2006, 1:21 PM
Dang kids! :rolleyes: Always trying to get someone else to give them the answers for their homework. Back in my day, we didn't have the Internet...we had to cheat the old-fashioned way, by looking over peoples' shoulders or stealing teachers' notes. In the snow. Uphill. Both ways. And we liked it!

Dang kids these days.

Uh...what was the question again? :p

- Vaughn

Bob Noles
04-20-2006, 1:32 PM
I'd just take a section 179 deduction the first year and be done with it :D

David Duke
04-20-2006, 1:36 PM
If Vince would stick to flat work instead of that Spin Meth he'd be much happier and richer;)

:D :D :D :D :D

Peter Gavin
04-20-2006, 1:45 PM
GAAP uses the mid month convention. So the first and last years would depend on what month he put it in service (not bought it).

Peter

Steve Clardy
04-20-2006, 1:48 PM
Sounds like Vince has quite a production lathe there. Lol
Yes, high production lathes cost a lot.

I have a 1965 German made Hempel CH-12 semi-auto copy lathe.
Last I checked in about 1997, replacement cost was $76,000.00

No help here on the deductions for ya.

Dev Emch
04-20-2006, 2:14 PM
The accounting system is joke!

First of all, it depends on what vince bought. A super high end lathe comparable to an oliver or zimmerman would be a deal at $45,000 new. A powermatic or jet for that price could land the dealer in jail for fraud!

Secondly, most woodworkers are bottom feeders. The vast majority of them dont buy new and if they do, they surely would not recycle kit after five years, esp. if the machine were of the afore mentioned quality.

Thirdly, I know a fair number of pro level, hard core, high end woodworkers. The vast majority would not touch a new machine if you paid them. The only exception here being CNC routers and wide belt sanders. More likely than not, these folks buy trashed olivers or vonnegut moulders for $250 bucks at auction and restore them during down time between projects. Then they use them for two or three years and sell them in the used machine market for $1250 or so bucks and move on to the next machine. The point being, that in the vast majority of cases, restored old iron in pro shops often leaves at or above the cost of aquisition and refurb. This surely has to truely vex these account types as this reality is backwards to what they might logically think.

So the a more realistic problem would be... Vince purchased a seriously used woodworking lathe from a large corporation who shut down its operation locally do to outsourcing jobs to China and competition from walmart. Vince paid $3500 dollars for the lathe at auction. The auction house takes a 10 percent bidder's premium and the online bidders fee was 15 precent. Vince used his 2 year old shop truck and utility trailer to drive 18 hours one way to pick up the lathe and back again. (i.e. Vinces time, fuel and food and wear and tear on his truck) He then spent $2500 dollars in local machine shop contracts fixing and replacing old parts and another $250 dollars for paint and finishing materials. He has personally invested about 250 hours of his time to restore this machine to brand new, show room quality. He then uses this machine to generate income in his woodworking business for a period of four years at which time he sells it to upgrade to another machine. His sales price is an even $6000 dollars.

So now how do you account types work this real world problem out....:rolleyes::rolleyes::rolleyes: See what I mean....

Bart Leetch
04-20-2006, 4:35 PM
Well Dev.

Had the accountant not stopped to go to the bathroom, he would have figured it out. :eek: :D

Frank Chaffee
04-20-2006, 5:11 PM
Well Dev.
Had the accountant not stopped to go to the bathroom, he would have figured it out. :eek: :D
Well Bart,
If the accountant were a productive human being he would not waste our time with sleight of hand tricks in the first place.
Donít worry folks, I have this discussion with my MBA brother a couple times a year, and so far we are at a draw.
Frank

Steve Clardy
04-20-2006, 5:35 PM
Well Dev.

Had the accountant not stopped to go to the bathroom, he would have figured it out. :eek: :D



ROFLAO:D :D