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On August 3, Cinco Construction purchased special-purpose equipment at a cost of $4,883,900. The useful life...

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Accounting

On August 3, Cinco Construction purchased special-purposeequipment at a cost of $4,883,900. The useful life of the equipmentwas estimated to be eight years, with an estimated residual valueof $95,890.

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?

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