General Medical Center bought equipment on January 2, 2010, for $18,000. The equipment was expected to remain
Question:
General Medical Center bought equipment on January 2, 2010, for $18,000. The equipment was expected to remain in service for four years and to perform 400 oper¬ ations. 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.
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 General 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.
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