The figures that follow to give the answer:
|
Method A: Straight Line |
Method B: Double Declining Balance |
|||||
|
Year |
Annual Depreciation Expense |
Accumulated Depreciation |
Book Value |
Annual Depreciation Expense |
Accumulated Depreciation |
Book Value |
|
Start |
$44,000 |
$44,000 |
||||
|
20X7 |
$4,000 |
$ 4,000 |
40,000 |
$8,800 |
$ 8,800 |
35,200 |
|
20X8 |
4,000 |
8,000 |
36,000 |
7,040 |
15,840 |
28,160 |
|
20X9 |
4,000 |
12,000 |
32,000 |
5,632 |
21,472 |
22,528 |
Required
1. Suppose the income tax authorities permitted a choice between these 2 depreciation methods. Which method would FedEx select for income tax purposes? Why?
2. Suppose FedEx purchased the equipment described in the table on January 1, 20X7. Management has depreciated the equipment by using the double declining balance method. On July 1, 20X9, FedEx sold the equipment for $27,000 cash.
Required
Record depreciation for 20X9 and the sale of the equipment on July 1, 20X9.