Effect of straight-line versus double-declining-balance depreciation on the recognition of expense and gains or losses
Same Day Laundry Services purchased a new steam press on January 1, for $35,000. It is expected to have a five-year useful life and a $3,000 salvage value. Same Day expects to use the steam press more extensively in the early years of its life.
Â a. Calculate the depreciation expense for each of the five years, assuming the use of straightline depreciation.
Â 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 Same Day Laundry Services sold the steam press at the end of the third year for $20,000. Compute the amount of gain or loss using each depreciation method.