On January 1, Year 1, Golden Company purchased a new computer system for $50,000. Management estimates that the system will have a 5-year life and a salvage value of $7,500. Jane Golden, the company president, knows that the system can be depreciated using either the straight-line method or the double-declining-balance method. She is concerned as to the possible effect on various financial statement analyses if the company uses one method versus the other.
Required: a)Indicate which method will have the larger negative effect (in other words, the less favorable effect)on each of the following ratios in Year 1:(1)Debt-to-equity ratio(2)Return-on-salesb)Indicate which method will have the larger negative effect on each of the following ratios in Year 4:(1)Debt-to-equity ratio(2)Return-on-sales

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The Answer of On January 1, Year 1, Golden Company purchased a new computer system for $50,000. Management estimates that the system will have a 5-year life and a salvage value of $7,500. Jane Golden, the company president, knows that the system can be depreciated using either the straight-line method or the double-declining-balance method. She is concerned as to the possible effect on various financial statement analyses if the company uses one method versus the other.
Required: a)Indicate which method will have the larger negative effect (in other words, the less favorable effect)on each of the following ratios in Year 1:(1)Debt-to-equity ratio(2)Return-on-salesb)Indicate which method will have the larger negative effect on each of the following ratios in Year 4:(1)Debt-to-equity ratio(2)Return-on-sales

On January 1, Year 1, Golden Company Purchased a New