The following is a note accompanying a recent financial statement of International PaperCompany :Plant, Properties, and EquipmentPlant, properties, and equipment are stated at cost less accumulated depreciation. Expenditures forbetterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills, and the straight-line method is used for other plants and equipment. Annual straight-line depreciation rates are, for buildings—21⁄2 percent to 81⁄2 percent, and for machinery and equipment—5 percent to 33 percent.Instructions a. Are the depreciation methods used in the company’s financial statements determined by cur-rent income tax laws? If not, who is responsible for selecting these methods? Explain. b. Does the company violate the consistency principle by using different depreciation methodsfor its paper mills and wood products facilities than it uses for its other plant and equipment?If not, what does the principle of consistency mean? Explain.c. What is the estimated useful life of the machinery and equipment being depreciated with astraight-line depreciation rate of:1. 5 percent.2. 33 percent (round to the nearest year).Who determines the useful lives over which specific assets are to be depreciated? d. Why do you think the company uses accelerated depreciation methods for income tax pur-poses, rather than using the straight-line method?
The following is a note accompanying a recent financial statement of International Paper
Company :
Plant, Properties, and Equipment
Plant, properties, and equipment are stated at cost less
betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The
units-of-production method of depreciation is used for major pulp and paper mills, and the straight-
line method is used for other plants and equipment. Annual straight-line depreciation rates are, for
buildings—21⁄2 percent to 81⁄2 percent, and for machinery and equipment—5 percent to 33 percent.
Instructions
a. Are the depreciation methods used in the company’s financial statements determined by cur-
rent income tax laws? If not, who is responsible for selecting these methods? Explain.
b. Does the company violate the consistency principle by using different depreciation methods
for its paper mills and wood products facilities than it uses for its other plant and equipment?
If not, what does the principle of consistency mean? Explain.
c. What is the estimated useful life of the machinery and equipment being
straight-line depreciation rate of:
1. 5 percent.
2. 33 percent (round to the nearest year).
Who determines the useful lives over which specific assets are to be depreciated?
d. Why do you think the company uses accelerated depreciation methods for income tax pur-
poses, rather than using the straight-line method?
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