Response to the following :
Effect of depreciation on ROI
Refer to the information presented in problem. Assume that Gandolfi Construction Co. calculated depreciation expense for the CAT 336DL earth mover on the straight-line method and reported $480,000 of net income for the year ended December 31, 2013. The company's average total assets for 2013 were $3,000,000.
Required:
a. Calculate Gandolfi's ROI for the year ended December 31, 2013.
b. Calculate what Gandolfi's ROI would have been for the year ended December 31, 2013, had the company used the double-declining-balance depreciation method for the CAT 336DL earth mover.
Problem:
Depreciation calculation methods Gandolfi Construction Co. purchased a used CAT 336DL earth mover at a cost of $325,000 in January 2013. The company's estimated useful life of this heavy equipment is 10 years, and the estimated salvage value is $75,000.
Required:
a. Using straight-line depreciation, calculate the depreciation expense to be recognized for 2013, the first year of the equipment's life, and calculate the equipment's net book value at December 31, 2015, after the third year of the equipment's life.
b. Using declining-balance depreciation at twice the straight-line rate, calculate the depreciation expense for the third year of the equipment's life.