On January 1,2016,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 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)Determine which method will have the larger negative effect (in other words,the less favorable effect)on each of the following ratios in 2016:
Debt to equity ratio
Return on sales (net income/sales)
b)Determine which method will have the larger negative effect on each of the following ratios in 2018:
Debt to equity ratio
Return on sales

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The Answer of On January 1,2016,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 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)Determine which method will have the larger negative effect (in other words,the less favorable effect)on each of the following ratios in 2016:
Debt to equity ratio
Return on sales (net income/sales)
b)Determine which method will have the larger negative effect on each of the following ratios in 2018:
Debt to equity ratio
Return on sales

On January 1,2016,Golden Company Purchased a New Computer System for $50,000.Management