Question
Walnut Ridge Production, Inc., purchased a new computerized video editing machine at a cost of $370,000. The system has a residual value of $55,700 and
Walnut Ridge Production, Inc., purchased a new computerized video editing machine at a cost of $370,000. The system has a residual value of $55,700 and an expected life of five years.
1. Compute depreciation expense, accumulated depreciation, and book value for the first three years of the machine's life using:
a. The straight-line method:
End of Year | Depreciation Expense | Accumulated Depreciation | Book Value |
$ | |||
1 | $ | $ | |
2 | |||
3 |
b. The double-declining-balance method:
End of Year | Depreciation Expense | Accumulated Depreciation | Book Value |
$ | |||
1 | $ | $ | |
2 | |||
3 |
2. Which method would produce the largest income in the first, second, and third year, respectively, of the asset's life?
Year | Method |
First year | SelectStraight-line methodDouble-declining-balance methodItem 21 |
Second year | SelectStraight-line methodDouble-declining-balance methodItem 22 |
Third year | SelectStraight-line methodDouble-declining-balance methodItem 23 |
3. Why might the controller of Walnut Ridge Production be interested in the effect of choosing a depreciation method? Evaluate the legitimacy of these interests.
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