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The straight-line depreciation method and the double-declining-balance depreciation method

a. Produce the same total depreciation over an asset's useful life

b. Produce the same depreciation expense each year

c. Produce the same book value each year

d. Are acceptable for tax purposes only

e. Are the only acceptable methods of depreciation for financial reporting

 

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Lelia Lubowitz
Lelia LubowitzLv2
11 May 2020

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On August 3, Cinco Construction purchased special-purpose equipment at a cost of $9,792,100. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $78,100.

a. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half-year convention).

b. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention) with a switch to straight-line when it will maximize depreciation expense.

c. Which of these two depreciation methods (straight-line or double-declining-balance) results in the highest net income for financial reporting purposes during the first two years of the equipment’s use?

year

1

2

3

4

5

6

7

8

9

On August 3, Cinco Construction purchased special-purposeequipment at a cost of $1,938,400. The useful life of the equipmentwas estimated to be eight years, with an estimated residual valueof $83,040.

a. Compute the depreciation expense to berecognized each calendar year for financial reporting purposesunder the straight-line depreciation method (half-yearconvention).

b. Compute the depreciation expense to berecognized each calendar year for financial reporting purposesunder the 200 percent declining-balance method (half-yearconvention) with a switch to straight-line when it will maximizedepreciation expense.

c. Which of these two depreciation methods(straight-line or double-declining-balance) results in the highestnet income for financial reporting purposes during the first twoyears of the equipment’s use?

Which method almost always produces the most depreciation in the first​ year?

a. Straight-line

b. Double-declining-balance

c. Units-of-production

D. All produce the same depreciation in the first year.

 

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