Question

Kingbird 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.

Year		Straight-Line				Sum-of-the- Years'-Digits				Double-Declining- Balance
1			$12,780				$21,300				$28,400
2			12,780				17,040				17,040
3			12,780				12,780				10,224
4			12,780				8,520				6,134
5			12,780				4,260				2,102
Total			$63,900				$63,900				$63,900

Answer the following questions.

What is the cost of the asset being depreciated?

Cost of asset

$enter the Cost of asset in dollars

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What amount, if any, was used in the depreciation calculations for the salvage value for this asset?

Salvage value

$enter the Salvage value in dollars

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Which method will produce the highest charge to income in Year 1?

The method that produces the highest charge to income in Year 1 is

select a method                                                                      Double-Declining-Balance MethodStraight-line MethodSum-of-the-Years'-Digits

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Which method will produce the highest charge to income in Year 4?

The method that produces the highest charge to income in Year 4 is

select a method                                                                      Double-Declining-Balance MethodStraight-line MethodSum-of-the-Years'-Digits

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Which method will produce the highest book value for the asset at the end of Year 3?

The method that produces the highest book value for the asset at the end of Year 3 is

select a method                                                                      Double-Declining-Balance MethodStraight-line MethodSum-of-the-Years'-Digits

eTextbook and Media

  

  

If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?

The method that will yield the highest gain (or lowest loss) on disposal of the asset if the asset is sold at the end of Year 3 is

select a method                                                                      Double-Declining-Balance MethodStraight-line MethodSum-of-the-Years'-Digits

Answer 1

a
Double-Declining- balance rate	40%	= 1/5*2
Cost of asset =	71000	=28400/40%
b
Salvage value	7100	=71000-63900

c

The method that produces the highest charge to income in Year 1 is Double-Declining-Balance

d

The method that produces the highest charge to income in Year 4 is Straight-line Method

e

Straight-line Method has the lowest accumulated depreciation

The method that produces the highest book value for the asset at the end of Year 3 is Straight-line Method

f

Double-Declining-Balance has the highest accumulated depreciation

The method that will yield the highest gain (or lowest loss) on disposal of the asset if the asset is sold at the end of Year 3 is Double-Declining-Balance Method