Multiple Methods for Calculating Depreciation for Venus Company (Jessica Gardner Company)

Venus Company purchased a new piece of equipment on July 1, 2004 at a cost of $600,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $50,000. The current year end is 12/31/05. Venus records depreciation to the nearest month.

What is straight-line depreciation for 2005?
a. $55,000.
b. $60,000.
c. $110,000.
d. $120,000.

What is sum-of-the-years'-digits depreciation for 2005?
a. $146,666.
b. $165,000.
c. $180,000.
d. $183,333.

What is double-declining-balance depreciation for 2005?
a. $144,000.
b. $192,000.
c. $220,000.
d. $240,000.

If Venus expensed the total cost of the equipment at 7/1/04, what was the effect on 2004 and 2005 income before taxes, assuming Venus uses straight-line depreciation?
a. $490,000 understated and $110,000 overstated.
b. $540,000 understated and $60,000 overstated.
c. $545,000 understated and $110,000 overstated.
d. $600,000 understated and $60,000 overstated.

If, at the end of 2006, Venus Company decides the equipment still has five more years of life beyond 12/31/06, with a salvage value of $50,000, what is straight-line depreciation for 2006? (Assume straight-line used in all years.)
a. $60,000.
b. $64,166.
c. $72,500.
d. $110,000.

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