Equilibrium Company adopted a program of purchasing a new machine each year. It uses the sum-of-the-years'-digits method of depreciation on its income tax return and straightline depreciation on its financial statements. Each machine costs \(\$ 15.000\) installed and has a depreciable life of 5 years.

a Calculate depreciation for each of the first 7 years in accordance with the sum-of-theyears'-digits method of depreciation.

b Calculate depreciation for each year in accordance with the straight-line method of depreciation.

c Calculate annual difference in depreciation calculated in parts \(\mathbf{a}\) and \(\mathbf{b}\).

d Calculate annual increase or decrease in the Deferred Income Tax Liability account. Assume a 40 -percent tax rate and straight-line depreciation in financial reports.

e Calculate year-end balances for the Deferred Income Tax Liability account.

f If Equilibrium Company continues to follow its policy of buying a new machine every year, what will happen to the balance in the Deferred Income Tax Liability account?