Question

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. Complete the following tasks for this assignment: 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

Answer 1

Answer and Explanation:

The computation of two different depreciation schedules is shown below:-

a. Using the Double-declining balance method

Year Equipment Cost Depreciation rate Amount

2005 $90,000 50% $45,000

2006 $45,000 50% $22,500

2007 $22,500 50% $11,250

2008 No depreciation as it is lower that straight line method that is $22,500 also we took the double rate of 25% so we consider 50%

b. Using the straight line method

Straight Line Depreciation Method:

$100,000 - $10,000

= $90,000

Year Equipment Cost Depreciation rate Amount

2005 $90,000 25% $22,500

2006 $90,000 25% $22,500

2007 $90,000 25% $22,500

2008 $90,000 25% $22,500

Depreciation rate is

= 1 ÷ 4 years

= 25

2. The double declining method reduced the net income while the straight line method increased the net icnome