Sweet’s Bakery makes cakes, pies, and other pastries that it sells to local grocery stores. The company experienced the following transactions during 2010.

1. Started business by acquiring $60,000 cash from the issue of common stock.

2. Purchased bakery equipment for $46,000.

3. Had sales in 2010 amounting to $42,000.

4. Paid $8,200 of cash for supplies which were all used during the year to make baked goods.

5. Incurred other operating expenses of $12,000 for 2010.

Required

a. Organize the class into two sections and divide each section into groups of three to five students. Assign each section a depreciation method: straight-line or double-declining balance.

Group Task

Prepare an income statement and balance sheet using the preceding information and the depreciation method assigned to your group.

Class Discussion

b. Have a representative of each section put its income statement on the board. Are there differences in net income? In the amount of income tax paid? How will these differences in the amount of depreciation expense change over the life of the equipment?