Development Industries purchased a depreciable asset for $50,000 on January 1, 2

Question

Development Industries purchased a depreciable asset for $50,000 on January 1, 2012. The asset has a five-year useful life and a $10,000 estimated salvage value. The company will use the straight-line method of depreciation for book purposes. However, Development will use the double-declining-balance method for tax purposes. Assume a tax rate of 30%. Required: Hide a. Prepare depreciation schedules using the straight-line method of depreciation for the useful life of the asset. Prepare depreciation schedules using the double-declining-balance method of depreciation for the useful life of the asset. Calculate the 2012 tax savings from the use of the accelerated depreciation method for tax purposes. $ c. Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold at the end of 2014 for $30,000? Enter your answers as positive values only. is $ Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold at the end of 2015 for $16,000? is $ d. A gain or loss on disposal of equipment, and depreciated expense are all reported on the . The gain on disposal of equipment is reported as and a loss is reported as . Depreciation expense is reported among .

Explanation / Answer

Depriciation Schedule Straight line method Depriciation Balance           500,000 31-12-2012 98000           402,000 31-12-2013 98000           304,000 31-12-2014 98000           206,000 31-12-2015 98000           108,000 31-12-2016 98000             10,000 Depriciation Schedule Double Decling method Depriciation Balance           500,000 31-12-2012 200000           300,000 31-12-2013 120000           180,000 31-12-2014 72000           108,000 31-12-2015 43200             64,800 31-12-2016 54800             10,000 Tax Saving Depriciation Straight line method Depriciation Balance tax saving           500,000 31-12-2012 98000           402,000 29400 31-12-2013 98000           304,000 29400 31-12-2014 98000           206,000 29400 31-12-2015 98000           108,000 29400 31-12-2016 98000             10,000 29400 Tax Saving Depriciation Double Decling method Depriciation Balance Tax Saving           500,000 31-12-2012 200000           300,000 60000 31-12-2013 120000           180,000 36000 31-12-2014 72000           108,000 21600 31-12-2015 43200             64,800 12960 31-12-2016 54800             10,000 16440 C At the end of 2014 Asets value 206000 Assets Sold at 30000 Loss 176000 At the end of 2015 Asets value 108000 Assets Sold at 16000 Loss 92000

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