Swanson & Hiller, Inc., purchased a new machine on September 1, 2006, at a cost of \(\$ 108,000\). The machine's estimated useful life at the time of the purchase was five years, and its residual value was \(\$ 8,000\).

Instructions

a. Prepare a complete depreciation schedule, beginning with calendar year 2006, under each of the methods listed below (assume that the half-year convention is used):
1. Straight-line.
2. 200 percent declining-balance.
3. 150 percent declining-balance, switching to straight-line when that maximizes the expense.

b. Which of the three methods computed in part a is most common for financial reporting purposes? Explain.

c. Assume that Swanson \& Hiller sells the machine on December 31, 2009, for \(\$ 28,000\) cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used in part \(\mathbf{a}\). Does the gain or loss reported in the company's income statement have any direct cash effects? Explain.