McGuire Batt Company produces a wide line of insulation materials. On January 1, it acquired new production equipment at a cost of $1,200,000. The machine has an expected life of four years and an estimated salvage value of $80,000. The engineering specifications of this new equipment state that it will produce two million units of product over its useful life. For the first year, the company’s net income before considering depreciation and taxes was $7.2 million. The company’s tax rate was 35%.

Required

A. Prepare a four-year depreciation schedule for the machinery under both straight-line and double-declining-balance methods.

B. Determine the amount of depreciation expense the company would record on its income statement for the first year if the units-of-production method were used and 400,000 units were produced.

C. Which of the three methods would result in the lowest income tax expense for the first year?

D. Which of the three methods would result in the highest net income for the first year?