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