Memorial Medical Centre bought equipment on January 2, 2014, for $ 30,000. The equipment was expected to remain in service for four years and to perform 1,000 operations. At the end of the equipment’s useful life, Memorial estimates that its residual value will be $ 6,000. The equipment performed 100 operations the first year, 300 the second year, 400 the third year, and 200 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?