Central Air Conditioning, Inc. purchased machinery for installing air conditioners. The purchase price of the machine on July 1, 2000, was $35,000. The company chose a seven-year life, a sum-of-the-years’ digits (SYD) depreciation, and no salvage value. Unfortunately, the weather during 2000, 2001, and 2002 was extremely mild and the machinery was not used as much as the company had thought. Therefore, it decided that the straight-line method would be more representative of the productive capacity of the machine, so it switched to the straight-line method on July 1, 2003.

Required (Ignore Income Tax)

a. Calculate depreciation expense, using SYD for the annual periods ending June 30, 2001, 2002, and 2003. (See Chapter 7 for a review of SYD depreciation.)

b. Calculate depreciation expense, using the straight-line method for the annual periods ending June 30, 2001, 2002, and 2003.

c. Show the cumulative effect of the change for July 1, 2003, in terms of the balance sheet equation.