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?
See the attached file for complete solution. Thanks.
Depreciation rate=(Cost-salvage value) / estimated life
2005 depreciation = $_______________. 22500
2006 depreciation = $_______________. 22500
2007 depreciation = $_______________. 22500
2008 depreciation = $_______________. 22500
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.