The sayers company purchased a building for $250,000 on January 2, 2010. The building has an expected residual value of $20,000 at the end of its expected life 20 years.
Prepare a schedule showing the depreciation for 2010 and 2011 and the book value on December 31, 2010 and December 31, 2011 for each of the following methods:
5. Compute the company’s return on assets (net income divided by average assets, as discuss in Chapter6) for each method in 2010 and 2011 assuming that income before depreciation is $50,000. For simplicity, use ending assets and ignore interest, income and other assets. Why does the rate of return increase each year?