A firm purchased computer-aided drafting and machining equipment at the beginning of the year for $420,000. The machine has an expected useful life of six years and a $38,000 residual value.

Required

a. Calculate the annual depreciation expense for the first four years of the equipment’s life using the straight-line method.

b. Calculate the annual depreciation expense for the first four years of the equipment’s life using the double-declining-balance method.

c. Calculate the annual depreciation expense for the first four years of the equipment’s life, using the sum-of-the-years’-digits method.

d. Comment on the differences in your results. Which method would managers prefer if they are trying to maximize their net income? Which method is preferred if the objective is to minimize income taxes? Why?

e. Using double-declining-balance depreciation, calculate depreciation expense through the sixth year. What adjustment to depreciation should be made in the sixth year?