Portland Co. uses the straight-line depreciation method for depreciable assets. All assets are depreciated individually, except manufacturing machinery, which is depreciated by the composite method. During the year, Portland exchanged a delivery truck with Maine Co. for a larger delivery truck. It paid cash equal to 10% of the larger truck’s value.
1. Explain the factors that should influence Portland’s selection of the straight-line depreciation method.
2. Explain how Portland should account for and report the truck exchange transaction.
3. a. What benefits should Portland derive from using the composite method rather than the individual basis for manufacturing machinery?
b. How should Portland calculate the manufacturing machinery’s annual depreciation expense in its first year of operation?