Depreciation methods (Learning Objective 3) 15–20 min.

Wellness Medical Center bought equipment on January 2, 2014, for $24,000. The equipment was expected to remain in service for four years and to perform 700 operations.

At the end of the equipment’s useful life, Wellness estimates that its residual value will be $3,000. The equipment performed 70 operations the first year, 210 the second year, 280 the third year, and 140 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 Wellness 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.

AppendixLO1