QuestionJuly 20, 2025

Alternative square methods are allowed because companies use their long-lived assets differently over their useful lives. Need help? Review these concept resources. Read About the Concept

Alternative square methods are allowed because companies use their long-lived assets differently over their useful lives. Need help? Review these concept resources. Read About the Concept
Alternative square methods are allowed because companies use their long-lived assets differently over their useful lives. Need help? Review these concept resources. Read About the Concept

Solution
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Answer

Companies choose depreciation methods based on how they utilize assets, impacting financial statements differently. Explanation 1. Understand Depreciation Methods Companies use different depreciation methods to allocate the cost of long-lived assets over their useful lives. Common methods include straight-line, declining balance, and units of production. 2. Straight-Line Method **Formula:** \text{Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} . This method spreads the asset's cost evenly across its useful life. 3. Declining Balance Method **Formula:** \text{Depreciation Expense} = \text{Book Value} \times \text{Rate} . This method applies a constant rate to the decreasing book value, resulting in higher expenses earlier. 4. Units of Production Method **Formula:** \text{Depreciation Expense} = \left(\frac{\text{Cost} - \text{Salvage Value}}{\text{Total Units}}\right) \times \text{Units Produced} . This method ties expense to actual usage.

Explanation

1. Understand Depreciation Methods<br /> Companies use different depreciation methods to allocate the cost of long-lived assets over their useful lives. Common methods include straight-line, declining balance, and units of production.<br /><br />2. Straight-Line Method<br /> **Formula:** $ \text{Depreciation Expense} = \frac{\text{Cost} - \text{Salvage Value}}{\text{Useful Life}} $. This method spreads the asset's cost evenly across its useful life.<br /><br />3. Declining Balance Method<br /> **Formula:** $ \text{Depreciation Expense} = \text{Book Value} \times \text{Rate} $. This method applies a constant rate to the decreasing book value, resulting in higher expenses earlier.<br /><br />4. Units of Production Method<br /> **Formula:** $ \text{Depreciation Expense} = \left(\frac{\text{Cost} - \text{Salvage Value}}{\text{Total Units}}\right) \times \text{Units Produced} $. This method ties expense to actual usage.
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