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Principle of Finance Acc311

In: Business and Management

Submitted By Duvaleir
Words 833
Pages 4
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: 1. 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). 2. Determine which method would result in the greatest net income for the year ending December 31, 2005. 3. How would taxes affect management’s choice between these two methods for the financial statements? 1. Let’s begin with straight-line depreciation since the double-declining balance is based upon it. But there’s an important disclaimer here: let’s assume that we know the salvage value at the end, so it reduces the depreciable amount by $10,000. More frequently the business finance problems assume no salvage value because it’s so hard to foresee. Then tooling is depreciated over its Expected life? And any salvage value simply comes back in the last Year. And another disclaimer: the IRS has a half-year convention for equipment put in place but since I am using the full-year in this problem, we’ll ignore that too.

Depreciation expense = Acquisition cost - residual value Estimated useful life in years Depreciation expense per year 22,500 = 100,000 - 10,000 = 90,000
$90,000 over 4 years, which gives 25% per year?
Salvage value= $10,000
Estimated useful life= 4 years
Depreciation expense= 100,000 - 10,000 = 22,500
D= $22,500 per year

Single-line Depreciation
Balances at End of Year 1 2 3 4
Acquisition cost of Equipment $ 100,000 $100,000 $100,000 $100,000
Accumulated Depreciation $ 22,500 $ 45,000 $ 67,500...

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