Jim Johnson and Joanne Johnson each purchased personal computers on January 1. The cost of each computer was $5,000. The economic life expectancy of the computers is four years (ok, so this is unrealistic...but it's just an accounting problem, not reality). During the current year, Jim and Joanne experience identical operating events with the only difference being that Jim uses the straight-line depreciation method while Joanne uses the declining balance depreciation method. Both became disenchanted with their computers during the year due to the introduction of a new generation of notebook technology. On December 31, each sold their computer for $2,000-note that this is the sales price only. There is no salvage value on the computer.
1. Calculate Jim's depreciation expense and gain or loss from the disposition of his computer for the current year.
2. Calculate Joanne's depreciation expense and gain or loss from the disposition of her computer for the current year.
3. Indicate how the current year's income statements for Jim and Joanne would differ.