On August 3, Cinco Construction purchased special-purposeequipment at a cost of $7,377,200. The useful life of the equipmentwas estimated to be eight years, with an estimated residual valueof $10,940.
a. Compute the depreciation expense to be recognized eachcalendar year for financial reporting purposes under thestraight-line depreciation method (half-year convention).
b. Compute the depreciation expense to be recognized eachcalendar year for financial reporting purposes under the 200percent declining-balance method (half-year convention) with aswitch to straight-line when it will maximize depreciationexpense.
c. Which of these two depreciation methods (straight-line ordouble-declining-balance) results in the highest net income forfinancial reporting purposes during the first two years of theequipment’s use?
