Dombey & Son acquired a new machine on 1 January 2013 at a cost of $135 000. Freight and installation charges amounted to $25 000. The machine was expected to have a useful life of four years and a residual value at the end of that period of $10 000. During its useful life, it was expected to be operated for 25 000 hours.

1. Prepare a table showing the annual depreciation expense relating to the machine for each of the years ending 31 December 2013, 2014, 2015 and 2016 using:

a. The straight-line method

b. The reducing balance method.
2. Assuming that Dombey & Son had used the units-of-production method, and that the machine had been operated for 7000 hours during the year ended 31 December 2016, show the journal entry to record the depreciation expense for that year.
3. How should Dombey & Son decide which depreciation method to use? Will the choice of depreciation method have any effect on the reported profit and financial position of Dombey & Son over the life of the asset?