Question

West Corp. purchased a piece of equipment in January 2014. The accountant of West Corp. decided to use double declining balance method to depreciate this equipment. For 2014, compared with using straight-line depreciation method, the company will have: (a) A higher net income and a higher accumulated depreciation. (b) A lower net income and a higher accumulated depreciation. (c) A higher net income and a lower accumulated depreciation. (d) A lower net income and a lower accumulated depreciation.

Answer 1

(b) A lower net income and a higher accumulated depreciation.

Step-by-step explanation:

`straight-line \: depreciation * 2 = double-declining \: depreciation`

The depreciation expense is higher the first periods using double-declining method. This generates a lower net income because the depreciation expense under DD method is greater.

Also, because the DD depreciation expense is greater the accumulated depreciation will be higher than striaght-line method.