Falling Leaves Lawn Care This company purchased new excavating equipment at the beginning of 2012.The equipment has a cost of $37,000,an estimated life of 5 years,and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2012.The equipment was used 20,000 hours during 2012 and 24,000 hours during 2013.The number of expected hours over five years is 100,000.
-Refer to Falling Leaves Lawn Care.The company 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 2012?

Question

Quizplus · Accepted Answer

Double-declining-balance method results in larger depreciation expense and larger tax savings in 2012 because it depreciates the asset at a faster rate, resulting in larger depreciation expenses in the earlier years. Straight-line method, on the other hand, spreads the depreciation expense evenly over the useful life of the asset, resulting in lower depreciation expense and tax savings in the early years.

Falling Leaves Lawn Care This Company Purchased New Excavating Equipment