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    Straight line and Double declining method of depreciation

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    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.

    - Prepare 2 different depreciation schedules for the equipment - one using the double declining 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 effect management's choice between these two financial statements?

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    Solution Preview

    See the attached file for complete solution. Thanks.

    (a) Straight-line
    Depreciation rate=(Cost-salvage value) / estimated life
    2005 depreciation = $_______________. 22500
    2006 depreciation = $_______________. 22500
    2007 depreciation = $_______________. 22500
    2008 depreciation = $_______________. 22500

    (b) ...

    Solution Summary

    In this problem, two different methods of depreciation are used to calculate the amount to be depreciated in the income statement of the company for each year. The net income in a particular year is different for the different deprecation methods. The post further discuss various issues or trade of which management needs to make for deciding which depreciation method is best under the given situation for their firm.