Clear Window Cleaners
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.
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Refer to the information provided for Clear Window Cleaners. Clear Window is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2011?
A) Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings.
B) Straight-line depreciation creates both the larger expense and the larger tax savings.
C) Double-declining-balance depreciation creates both the larger expense and the larger tax savings.
D) Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

Question

Clear Window Cleaners 
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.
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Refer to the information provided for Clear Window Cleaners. Clear Window is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2011?
A) Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings.
B) Straight-line depreciation creates both the larger expense and the larger tax savings.
C) Double-declining-balance depreciation creates both the larger expense and the larger tax savings.
D) Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

Quizplus · Accepted Answer

The double-declining-balance method results in a larger depreciation expense in the early years compared to the straight-line method, leading to larger tax savings in 2011.