On August 3, Cinco Construction purchased special-purposeequipment at a cost of $1,938,400. The useful life of the equipmentwas estimated to be eight years, with an estimated residual valueof $83,040.
a. Compute the depreciation expense to berecognized each calendar year for financial reporting purposesunder the straight-line depreciation method (half-yearconvention).
b. Compute the depreciation expense to berecognized each calendar year for financial reporting purposesunder the 200 percent declining-balance method (half-yearconvention) with a switch to straight-line when it will maximizedepreciation expense.
c. Which of these two depreciation methods(straight-line or double-declining-balance) results in the highestnet income for financial reporting purposes during the first twoyears of the equipmentâs use?
On August 3, Cinco Construction purchased special-purposeequipment at a cost of $1,938,400. The useful life of the equipmentwas estimated to be eight years, with an estimated residual valueof $83,040.
a. Compute the depreciation expense to berecognized each calendar year for financial reporting purposesunder the straight-line depreciation method (half-yearconvention).
b. Compute the depreciation expense to berecognized each calendar year for financial reporting purposesunder the 200 percent declining-balance method (half-yearconvention) with a switch to straight-line when it will maximizedepreciation expense.
c. Which of these two depreciation methods(straight-line or double-declining-balance) results in the highestnet income for financial reporting purposes during the first twoyears of the equipmentâs use?
