14 Aug accounting
E11-2B (Depreciation—Conceptual Understanding) Bayliner Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years’-digits method, and (3) the double-declining-balance method.
Sum-of-the- Double-Declining-
Year Straight-Line Years’-Digits Balance
1 $15,000 $25,000 $34,000
2 15,000 20,000 20,400
3 15,000 15,000 12,240
4 15,000 10,000 7,344
5 15,000 5,000 1,016
Total $75,000 $75,000 $75,000
Instructions
Answer the following questions.
(a) What is the cost of the asset being depreciated?
(b) What amount, if any, was used in the depreciation calculations for the salvage value for this asset?
(c) Which method will produce the highest charge to income in Year 2?
(d) Which method will produce the highest charge to income in Year 5?
(e) Which method will produce the lowest book value for the asset at the end of Year 3?
(f) If the asset is sold at the end of Year 4, which method would yield the lowest gain (or highest loss)
on disposal of the asset?
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