A firm purchased computer-aided drafting and machining (CAD-CAM) equipment at the beginning of 1998 for $420,000. The machine has an expected useful life of six years and a $38,000 residual value. Assume that the firm begins the year (before purchasing the CAD-CAM equipment) with the following balance sheet totals:

Plant and equipment $6,250,000 Less: Accumulated depreciation (1,145,000)

Plant and equipment, net $5,105,000 Required

a. Calculate the ending balances in each of these accounts after including the annual double-declining-balance depreciation for the first four years of the equipment’s life. Ignore depreciation on the existing plant and equipment.

b. After the firm has owned the CAD-CAM machine for six years, what effects would the use of straight-line depreciation versus double-declining-balance depreciation have on the firm’s net income? Why?