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Depreciation Schedule: Balls and Bats, Inc.

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.

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?

Solution Preview

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).

Double-declining balance depreciation
Year Beg. BV Depreciation Expense End BV
2005 100,000 100,000*2/4=50,000 50,000
2006 50,000 50,000*2/4=25,000 25,000
2007 25,000 25,000*2/4=12,500 12,500
2008 ...

$2.19