Depreciation Methods 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 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?