Acg 320
Balls and Bats, Inc. purchased equipment on January 1, 2005, at a cost of $100,000. The estimated useful life is 4 years with a salvage value of $10,000.
For this assignment you are to complete the following tasks:
Prepare two different depreciation schedules for the equipment one using the double-declining balance method, and the other using the straight-line method. (Round to the nearest dollar).
Determine which method would result in the greatest net income for the year ending December 31, 2005.
How would taxes affect management's choice between these two methods for the financial statements?
1. Straight-line Method
Depreciation expense = Acquisition cost residual value Estimated useful life in years
Depreciation expense per year 22,500 = 100,000 - 10,000 = 90,000 4 4
Straight Line Depreciation
Yrs of the asset's life Depreciation
Expense
(income statement) Accumulated depreciation
(balance sheet at end of the year) Book value of the asset
(balance sheet at end of the year)
1 22,500 22,500 77,500
2 22,500 45,000 55,000
3 22,500 67,500 32,500
4 22,500 90,000 10,000
2. Double-Declining Balance Depreciation
Depreciation expense = existing book value X (2/estimated useful life of years) 100,000x2/4 = 50,000
Double-Declining Balance Depreciation
Yrs of the asset's life Depreciation
Rate = 50% Book value before depreciating the asset for the year Depreciation expense for the year Accumulated depreciation (at the end of the year)
1 0.5 100,000 50,000 50,000
2 0.5 50,000 25,000 75,000
3 0.5 25,00 12,500 87,500
4 0.5 12.5 2.5 90,000
Using straight line deprecation of 1 year means that 22,500 (1*22,500) has been added to the accumulated deprecation. The cost of the assets $100,000 minus $22,500, equal the book value at the end of December 31, 2005, of $77,500.
Using the double declining method deprecation of 1 year means that 2/4 and multiply it by each
For this assignment you are to complete the following tasks:
Prepare two different depreciation schedules for the equipment one using the double-declining balance method, and the other using the straight-line method. (Round to the nearest dollar).
Determine which method would result in the greatest net income for the year ending December 31, 2005.
How would taxes affect management's choice between these two methods for the financial statements?
1. Straight-line Method
Depreciation expense = Acquisition cost residual value Estimated useful life in years
Depreciation expense per year 22,500 = 100,000 - 10,000 = 90,000 4 4
Straight Line Depreciation
Yrs of the asset's life Depreciation
Expense
(income statement) Accumulated depreciation
(balance sheet at end of the year) Book value of the asset
(balance sheet at end of the year)
1 22,500 22,500 77,500
2 22,500 45,000 55,000
3 22,500 67,500 32,500
4 22,500 90,000 10,000
2. Double-Declining Balance Depreciation
Depreciation expense = existing book value X (2/estimated useful life of years) 100,000x2/4 = 50,000
Double-Declining Balance Depreciation
Yrs of the asset's life Depreciation
Rate = 50% Book value before depreciating the asset for the year Depreciation expense for the year Accumulated depreciation (at the end of the year)
1 0.5 100,000 50,000 50,000
2 0.5 50,000 25,000 75,000
3 0.5 25,00 12,500 87,500
4 0.5 12.5 2.5 90,000
Using straight line deprecation of 1 year means that 22,500 (1*22,500) has been added to the accumulated deprecation. The cost of the assets $100,000 minus $22,500, equal the book value at the end of December 31, 2005, of $77,500.
Using the double declining method deprecation of 1 year means that 2/4 and multiply it by each