Choice among Depreciation Methods}

Walnut Ridge Production Ltd. purchased a new computerized video editing machine at a cost of \(\$ 450,000\). The system has an estimated residual value of \(\$ 64,000\) and an estimated life of five years.

\section*{Required:}

1. Compute depreciation expense, accumulated depreciation, and book value for the first three years of the machine's life using the

(a) straight-line method and

(b) double-decliningbalance method.

2. Which method would produce the largest income in the first, second, and third years of the asset's life?

3. Why might the controller of Walnut Ridge Production be interested in the effect of choosing a depreciation method? Evaluate the legitimacy of these interests.

\section*{Exercise