Question

Use the following matrix to compute straight line depreciation for the following two scenarios:

1. Equipment cost of $120,000, six-year useful life, no salvage value and no trade in; and
2. Equipment cost of $120,000, six-year useful life, no trade in, salvage value of $30,000.

What is the dollar difference in annual depreciation between these two scenarios?

Note: Your answer should contain both of the boxes below.

No salvage:

Year #	Annual Depreciation	Remaining Balance
Beginning Balance = $120,000
1
2
3
4
5
6

Salvage:

Year #	Annual Depreciation	Remaining Balance
Beginning Balance = $120,000
1
2
3
4
5
6

Answer 1

Annual Depreciation = Cost - Salvage Value / Life of assets
scenario:1
=($120000-0)/6
$         20,000
scenario:2
=($120000-30000)/6
$         15,000
Difference = $20000-15000 =$5000
No Salvage
Year	Annual Depreciation	Remaining Balance
1	$                          20,000	$                   1,00,000
2	$                          20,000	$                       80,000
3	$                          20,000	$                       60,000
4	$                          20,000	$                       40,000
5	$                          20,000	$                       20,000
6	$                          20,000	$                                -
Salvage :$30000
Year	Annual Depreciation	Remaining Balance
1	$                          15,000	$                   1,05,000
2	$                          15,000	$                       90,000
3	$                          15,000	$                       75,000
4	$                          15,000	$                       60,000
5	$                          15,000	$                       45,000
6	$                          15,000	$                       30,000