Development Industries purchased a depreciable asset for $50,000 on January 1, 2012. The asset has a five-year

Question:

Development Industries purchased a depreciable asset for $50,000 on January 1, 2012. The asset has a five-year useful life and a $10,000 estimated salvage value. The company will use the straight-line method of depreciation for book purposes. However, Development will use the double-declining balance method for tax purposes. Assume a tax rate of 30%.

Required
a. Prepare depreciation schedules using the straight-line and double-declining-balance methods of depreciation for the useful life of the asset.
b. Calculate the 2012 tax savings from the use of the accelerated depreciation method for tax purposes.
c. Under the straight-line method of depreciation, what is the gain or loss if the equipment is sold (1) at the end of 2014 for $30,000 or (2) at the end of 2015 for $16,000?
d. How is the gain or loss on the disposal of the equipment presented in the financial statements? How does this differ from how depreciation expense is presented?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...