On August 3, Cinco Construction purchased special-purpose equipment at a cost of $9,792,100. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $78,100.
a. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half-year convention).
b. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention) with a switch to straight-line when it will maximize depreciation expense.
c. Which of these two depreciation methods (straight-line or double-declining-balance) results in the highest net income for financial reporting purposes during the first two years of the equipmentâs use?
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On August 3, Cinco Construction purchased special-purpose equipment at a cost of $9,792,100. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $78,100.
a. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half-year convention).
b. Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention) with a switch to straight-line when it will maximize depreciation expense.
c. Which of these two depreciation methods (straight-line or double-declining-balance) results in the highest net income for financial reporting purposes during the first two years of the equipmentâs use?
year
1
2
3
4
5
6
7
8
9
Related questions
I NEED HELP WITHT THE STRAIGHT LINE SWITCH OVER PART AT THEBOTTOM. NOT THE OTHER SECTIONS! THANKS :)
Computing Depreciation Expense
Equipment costing $290,000, with an expected scrap value of$30,000 and an estimated useful life of five years, was purchasedon January 1, 2016.
Calculate the depreciation expense for years 2016 to 2020using
Round to the nearest whole number.
| 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Straight-line depreciation | $Answer | $Answer | $Answer | $Answer | $Answer |
| Double-declining balance | |||||
| (a) without straight-line switch-over | $Answer | $Answer | $Answer | $Answer | $Answer |
| (b) with straight-line switch-over | $Answer | $Answer | $Answer | $Answer | $Answer |
Which method is typically preferred for:
| (a) income tax purposes? | AnswerDouble-decliningbalanceStraight-line method Correct |
| (b) financial reporting purposes? | AnswerDouble-decliningbalanceStraight-line method |
