Question

Indigo Corporation purchased machinery on January 1, 2022, at a cost of $292,000. The estimated useful life of the machinery is 4 years, with an estimated salvage value at the end of that period of $34,200. The company is considering different depreciation methods that could be used for financial reporting purposes.

Prepare separate depreciation schedules for the machinery using the straight-line method, and the declining-balance method using double the straight-line rate. STRAIGHT-LINE DEPRECIATION Computation End of Year Years Depreciable Cost x Depreciation Rate = Annual Depreciation Expense Accumulated Depreciation Book Value 2022 $enter a dollar amount enter a Depreciation Rate in percentages % $enter a dollar amount $enter a dollar amount $enter a dollar amount 2023 enter a dollar amount enter a Depreciation Rate in percentages % enter a dollar amount enter a dollar amount enter a dollar amount 2024 enter a dollar amount enter a Depreciation Rate in percentages % enter a dollar amount enter a dollar amount enter a dollar amount 2025 enter a dollar amount enter a Depreciation Rate in percentages % enter a dollar amount enter a dollar amount enter a dollar amount $enter a total for the Annual Depreciation Expense column in dollars DOUBLE-DECLINING-BALANCE DEPRECIATION Computation End of Year Years Book Value Beginning of Year × Depreciation Rate = Annual Depreciation Expense Accumulated Depreciation Book Value 2022 $enter a dollar amount enter a Depreciation Rate in percentages % $enter a dollar amount $enter a dollar amount $enter a dollar amount 2023 enter a dollar amount enter a Depreciation Rate in percentages % enter a dollar amount enter a dollar amount enter a dollar amount 2024 enter a dollar amount enter a Depreciation Rate in percentages % enter a dollar amount enter a dollar amount enter a dollar amount 2025 enter a dollar amount enter a Depreciation Rate in percentages % 2,300 * enter a dollar amount enter a dollar amount $enter a total for the Annual Depreciation Expense column in dollars * Depreciation expense for 2020 under Double declining-balance is adjusted so that ending book value is equal to salvage value. LINK TO TEXT

(b1) Which method would result in the higher reported 2022 income? select an option Double-declining-balance Depreciation or Straight-line Depreciation (b2) Which method would result in the highest total reported income over the 4-year period? select an option Double-declining-balance Depreciation or Both or Straight-line Depreciation LINK TO TEXT

(c1) Which method would result in the lower reported 2022 income? select an option Double-declining-balance Depreciation or Straight-line Depreciation (c2) Which method would result in the lowest total reported income over the 4-year period? select an option Both or Straight-line Depreciation or Double-declining-balance Depreciation

Answer 1

Indigo
Workings for capitalized cost	Amount $	Note
Purchase cost of equipment	292,000.00	A
Less: Residual Value	34,200.00	B
Depreciable Cost	257,800.00	C=A-B
Life (Years)	4.00	D
Annual Depreciation	64,450.00	E=C/D
Depreciation rate	25.00%	F=E/C

Answer 1	Straight line method
Year	Depreciable Cost*	Depreciation rate	Depreciation expense	Accumulated Deprecation	End Book Value
Year 2022	257,800.00	25.00%	64,450.00	64,450.00	227,550.00
Year 2023	257,800.00	25.00%	64,450.00	128,900.00	163,100.00
Year 2024	257,800.00	25.00%	64,450.00	193,350.00	98,650.00
Year 2025	257,800.00	25.00%	64,450.00	257,800.00	34,200.00

Double Declining Method	Amount $	Note
Total cost	292,000.00	A
Life	5.00	B
Annual depreciation	58,400.00	C=A/B
Depreciation rate	20.00%	D=C/A
Double Depreciation %	40.00%	E=D*2

Year	Book Value Beginning of Year	Depreciation rate	Depreciation expense	Accumulated Deprecation	End Book Value
Year 2022	292,000.00	40.00%	116,800.00	116,800.00	175,200.00
Year 2023	175,200.00	40.00%	70,080.00	186,880.00	105,120.00
Year 2024	105,120.00	40.00%	42,048.00	228,928.00	63,072.00
Year 2025	63,072.00	40.00%	25,229.00	254,157.00	37,843.00

Answer b1

Straight-line Depreciation

Answer b2

Both

Answer c1

Double-declining-balance Depreciation

Answer c2

Both