Stillman Company purchased a new machine at the start of its current year at a cost of $37,500. The machine is expected to serve for five years and to have a salvage value of $3,000. Ronald L. Stillman, the chief executive officer, has asked for information as to the effects of alternative depreciation methods.

REQUIRED 1.. Calculate the annual depreciation expense for each of the five years of expected life of the machine, the accumulated depreciation at the end of each year, and the book value at the end of each year using the following methods:

(a) Straight-line

(b) Double-declining-balance

(c) Sum-of-the-years’-digits 2.. Assume that in years 2 and 4 of the five-year life of this machine, revenues are $45,000 and costs and expenses other than depreciation are $25,000. Calculate the net income for years 2 and 4 using the same three depreciation methods used in Part (1).
3.. Assume that Stillman chose the double-declining-balance method of depreciation for this machine. Then, in the first week of year 5, the machine was exchanged (traded in) for similar equipment costing $45,000. The market value and trade-in allowance on the old machine was $4,000 and cash was paid for the balance. Prepare the necessary journal entry to record this exchange.