One Day Laundry Services purchased a new steam press on January 1, for $42,000. It is expected

Question:

One Day Laundry Services purchased a new steam press on January 1, for $42,000. It is expected to have a five-year useful life and a $2,000 salvage value. One Day expects to use the steam press more extensively in the early years of its life.

Required

a. Calculate the depreciation expense for each of the five years, assuming the use of straight-line depreciation.

b. Calculate the depreciation expense for each of the five years, assuming the use of double-declining-balance depreciation.

c. Would the choice of one depreciation method over another produce a different amount of cash flow for any year? Why or why not?

d. Assume that One Day Laundry Services sold the steam press at the end of the third year for $22,000. Compute the amount of gain or loss using each depreciation method.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...