(a) Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate

Miriam Corporation purchased machinery on January 1, 2014, at a cost of $380,000. The estimated useful life of the machinery is 5 years, with an estimated salvage value at the end of that period of $20,000. The company is considering different depreciation methods that could be used for financial reporting purposes.

Instructions

(a) Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate.

(b) Which method would result in the higher reported 2014 income? In the higher total reported income over the 5-year period?

(c) Which method would result in the lower reported 2014 income? In the lower total reported income over the 5-year period?

SOLUTION

(a)

STRAIGHT-LINE DEPRECIATION

Computation End of Year

Annual

Depreciable Depreciation Depreciation Accumulated Book

Years Cost X Rate = Expense Depreciation Value

2014 $360,000a 20%b $ 72,000 $ 72,000 $308,000

2015 360,000 20% 72,000 144,000 236,000

2016 360,000 20% 72,000 216,000 164,000

2017 360,000 20% 72,000 288,000 92,000

2018 360,000 20% 72,000 360,000 20,000