Rahim Corporation purchased a boardroom table for $17,000. The company planned to keep it for four years, after which it was expected to be sold for $1,000.
Instructions
(a) Calculate the depreciation expense for each of the first three years under
(1) The straight-line method, and
(2) The double-diminishing-balance method assuming the table was purchased early in the first month of the first year.
(b) Assuming Rahim sold the table for $5,800 at the end of the third year, calculate the gain or loss on disposal under each depreciation method.
(c) Determine the impact on net income (total depreciation of the table plus any loss on disposal or less any gain on disposal) of each method over the entire three-year period.
(d) Which method of depreciation do you believe is the most appropriate for a boardroom table? Why?