On January $1,2024,$ Locke Company, a small machine$-$tool manufacturer, a piece of new industrial equipment. Pertinent data follow:

Cost of equipment $$1,260,000$

Useful life $5$ years

Estimated salvage value $60,000$

Estimated machine tools to be produced in first year $12,000$

Estimated production decline per year over the

remaining life of the equipment $1,000$ units

Class life for tax purposes $7$ years

The following depreciation methods may be used:

$1.$ Straight$-$line

$2.$ Double$-$declining balance

$3.$ Sum$-$of$-$years'$-$digits

$4.$ Units$-$of$-$output

MACRS tables

Recover Year $3-$Year $(200\%$ DB$)5-$Year $(200\%$ DB$)7-$Year $(200\%$ DB$)10-$Year $(200\%$ DB$)$

$133\mathrm{.}3320\mathrm{.}0014\mathrm{.}2910\mathrm{.}00$

$244\mathrm{.}4532\mathrm{.}0024\mathrm{.}4918\mathrm{.}00$

$314\mathrm{.}8119\mathrm{.}2017\mathrm{.}4914\mathrm{.}40$

$47\mathrm{.}4111\mathrm{.}5212\mathrm{.}4911\mathrm{.}52$

$511\mathrm{.}528\mathrm{.}939\mathrm{.}22$

$65\mathrm{.}768\mathrm{.}927\mathrm{.}37$

$78\mathrm{.}936\mathrm{.}55$

$84\mathrm{.}466\mathrm{.}55$

Instructions: $($AICPA adapted$)$

a$.$ Which depreciation method would maximize net income for financial statement reporting for the $3-$year period ending December $31,2026?$ Prepare a schedule showing the amount of accumulated depreciation at December $31,2026,$ under the method selected. Ignore present value, income tax, and deferred income tax considerations.

b$.$ Which depreciation method $($MACRS or optional straight$-$line$)$ would minimize net income for income tax reporting for the $3-$year period ending December $36,2026?$ Determine the amount of accumulated depreciation at December $31,2026.$ Ignore present value considerations.

NOTE: Enter a formula with cell references into the yellow shaded input cells. When calculating depreciation, use one of Excel depreciation functions with cell references.

a$.$

$1.$ Straight$-$line using the SLN function

Year "Depreciation

Expense" "Accumulated

Depreciation"

$2024$

$2025$

$2026$

$2.$ Double$-$declining balance using the DDB function

Year "Depreciation

Expense" "Accumulated

Depreciation"

$2024$

$2025$

$2026$

$3.$ Sum$-$of$-$years'$-$digits using the SYD function

Year "Depreciation

Expense" "Accumulated

Depreciation"

$2024$

$2025$

$2026$

$4.$ Units$-$of$-$output using formulas

Unit depreciation per unit

Year "Depreciation

Expense" "Accumulated

Depreciation"

$2024$

$2025$

$2026$

b$.$ General MACRS method: $($Values taken from the MACRS rates schedule.$)$

Year "Depreciation

Expense" "Accumulated

Depreciation"

$2024$

$2025$

$2026$

Optional straight$-$line method

Year "Depreciation

Expense" "Accumulated

Depreciation"

$2024$

$2025$

$2026$

Method to maximize net income for financial statement reporting for the $3-$year period ending December $31,2026$