On August 3, Cinco Construction purchased special-purpose equipment at a cost of $6,560,400. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $42,840.   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 equipment’s use? a) year   straight line ( half-year convention) 1     2     3     4     5     6     7     8     9     Totals   $ b) year 200% declining balance ( half-year convention) 1   2   3   4   5   6   7   8   9   Totals $ c) Depreciation method

FINANCIAL ACCOUNTING
10th Edition
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Chapter1: Financial Statements And Business Decisions
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On August 3, Cinco Construction purchased special-purpose equipment at a cost of $6,560,400. The useful life of the equipment was estimated to be eight years, with an estimated residual value of $42,840.

 

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 equipment’s use?

a)

year   straight line ( half-year convention)
1    
2    
3    
4    
5    
6    
7    
8    
9    
Totals   $

b)

year 200% declining balance ( half-year convention)
1  
2  
3  
4  
5  
6  
7  
8  
9  
Totals $

c) Depreciation method 

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