Grace Medical Center bought equipment on January 2, 2012, for $27,000. The equipment was expected to remain in service for 4 years and to perform 1,000 operations. At the end of the equipment’s useful life, Grace estimates that its residual value will be $3,000. The equipment performed 100 operations the first year, 300 the second year, 400 the third year, and 200 the fourth year.

Requirements

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 Grace prefer to use for income-tax purposes in the first years of the equipment’s life? Explain in detail why a taxpayer prefers this method.