Question

Sarasota Corporation purchased machinery on January 1, 2022, at a cost of $280,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $33,000. The company is considering different depreciation methods that could be used for financial reporting purposes. Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate. STRAIGHT-LINE DEPRECIATION Computation Years Depreciable Cost x Depreciation Rate = Annual Depreciation Expense End of Year Accumulated Depreciation Book Value 2022 2023 2024 2025

Answer 1

Straight-Line Depreciation Method:

Cost of Machine = $280,000
Salvage Value = $33,000
Useful Life = 4 years

Depreciable Cost = Cost of Machine - Salvage Value
Depreciable Cost = $280,000 - $33,000
Depreciable Cost = $247,000

Straight-Line Depreciation Rate = 1 / Useful Life
Straight-Line Depreciation Rate = 1 / 4
Straight-Line Depreciation Rate = 25%

Years 2022 2023 2024 2025 STRAIGHT-LINE DEPRECIATION Computation Annual End of Year Depreciation Depreciation Depreciable Cost | Accumulated Book Value Rate Expense | Depreciation $ 247,000 25% $ 61,750 $ 61,750 $ 218,250 $ 247,000 25% $ 61,750 $ 123,500 $ 156,500 247,000 25% $ 61,750 $ 185,250 $ 94,750 247,000 25% $ 61,750 $ 247,000 $ 33,000 $ 247,000 $ S

Double-Declining-Balance Depreciation Method:

Useful Life = 4 years

Double-Declining-Balance Depreciation Rate = 2 / Useful Life
Double-Declining-Balance Depreciation Rate = 2 / 4
Double-Declining-Balance Depreciation Rate = 50%

Years 2022 2023 2024 2025 DOUBLE-DECLINING-BALANCE DEPRECIATION Computation Annual End of Year Book Value Depreciation Depreciation | Accumulated Book Value Beginning of Year Rate Expense Depreciation 280,000 50% $ 140,000 $ 140,000 $ 140,000 $ 140,000 50% $ 70,000 $ 210,000 $ 70,000 $ 70,000 50% $ 35,000 $ 245,000 $ 35,000 35,000 2,000 $ 247,000 $ 33,000 $ 247,000

Straight-line depreciation method would result in the higher net income.
Double-declining-balance depreciation method would result in the higher net income.