The Sayers Company purchased a building for $250,000 on January 2, 2007. The building has an expected residual value of $20,000 at the end of its expected life of 20 years.

Required

Prepare a schedule showing the depreciation for 2007 and 2008 and the book value on December 31, 2007 and December 31, 2008 for each of the following methods:

1. Straight-line

2. Sum-of-the-years’-digits

3. Double-declining-balance

4. 150%-declining-balance

5. Compute the company’s return on assets (net income divided by average total assets, as discussed in Chapter 6) for each method in 2007 and 2008 assuming that income before depreciation is $50,000. For simplicity, use ending assets, and ignore interest, income taxes, and other assets. Why does the rate of return increase each year?