Depreciation and Rate of Return Burrell Company purchased a machine for $19000 o
ID: 2525620 • Letter: D
Question
Depreciation and Rate of Return
Burrell Company purchased a machine for $19000 on January 2, 2016. The machine has an estimated service life of 5 years and a zero estimated residual value. The asset earns income before depreciation and income taxes of $9500 each year. The tax rate is 35%.
Required:
Compute the rate of return earned (on the average net asset value) by the company each year of the asset's life under the straight-line and the double-declining-balance depreciation methods. Assume that the machine is the company's only asset.
Straight-line method. Do not round intermediate calculations. Round final answer to two decimal places.
2016: ____%
2017: ____%
2018: ____%
2019: ____%
2020: ____%
Double-declining-balance depreciation method. Do not round intermediate calculations. Round final answer to two decimal places.
2016: ____%
2017: ____%
2018: ____%
2019: ____%
2020: ____%
***Please show all work and calculations****
Explanation / Answer
1) Straight line depreciation = 19000 / 5 = $3800
2) Double declining method
Workings for Depreciation
Straight Line Method Year Depreciation Carrying amount EBIT Tax@35% EAT ROR 2016 $3,800 $15,200 $5,700 $1,995 $3,705 48.75% 2017 $3,800 $11,400 $5,700 $1,995 $3,705 48.75% 2018 $3,800 $7,600 $5,700 $1,995 $3,705 48.75% 2019 $3,800 $3,800 $5,700 $1,995 $3,705 48.75% 2020 $3,800 $0 $5,700 $1,995 $3,705 48.75% Average $7,600Related Questions
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