General Medical Centre bought equipment on January 2 2014 for
General Medical Centre bought equipment on January 2, 2014, for $18,000. The equipment was expected to remain in service for four years and to perform 400 operations. At the end of the equipment’s useful life, General estimates that its residual value will be $4,000. The equipment performed 40 operations the first year, 120 the second year, 160 the third year, and 80 the fourth year.
1. Prepare a schedule of depreciation expense per year for the equipment under the three depreciation methods. After two years under double-declining-balance depreciation, the company switched to the straight-line method. Show your computations.
2. Which method tracks the wear and tear on the equipment most closely?
3. Which method would result in the lowest net income over the first few years of the asset's life? Why?
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