Problem 9-9A Ayayai Corporation purchased machinery on January 1, 2017, at a cos

Question

Problem 9-9A Ayayai Corporation purchased machinery on January 1, 2017, at a cost of $270,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $26,000. The company is considering different depreciation methods that could be used for financial reporting purposes. Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate. STRAIGHT-LINE DEPRECIATION Computation End of Year Annual Depreciation Expense Accumulated Depreciation Book Value Years Depreciable Cost x Depreciation Rate 2017 2018 2019 2020 DOUBLE DECLINING BALANCE DEPRECIATION Computation End of Year Years Book Value Beginning of Year Depreciation Rate Annual Depreciation Expense Accumulated Depreciation Book Value 2017 2018 2019 2020 7,750

Explanation / Answer

Straight line depreciation :

Double decline depreciation :

Straight line method would result in the higher reported income. No it is not highest reported income over 4 year period

Double decline method would result in the lower reported income. No it is not lower reported income over 4 year period

Computation End of year Year Depreciable cost * Depreciation rate = Annual depreciation expense Accumlated depreciation Book value 2017 244000 * 25% = 61000 61000 209000 2018 244000 * 25% = 61000 122000 148000 2019 244000 * 25% = 61000 183000 87000 2020 244000 * 25% = 61000 244000 26000 Total 244000

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