On August 3, Cinco Construction purchased special-purpose equipment at a cost of $7,377,200. The useful life...

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Accounting

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?

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a Computation of Depreciation expense to be recognized each calender year under Straight Line Depreciation Method Depreciation Expense Depreciable Amount Useful Life Depreciable Amount Cost Salvage value a Cost 7377200 b Salvage value residual value 10940 c Depreciable Amount ab 7366260 Useful life in years 8 Annual Depreciation Expense 7366260 8 years 92078250 Year Straight Line Method Half Year Convention Calculation Depreciation Expense 1 Half year depreciation 92078250 12 46039125 2 Full year depreciation 92078250 3 Full year depreciation 92078250 4 Full year depreciation 92078250 5 Full year depreciation 92078250 6 Full year depreciation See Answer

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