Phillips Ltd. purchased a machine on 26 March 20X3 for $90,000 and began to use it immediately. The estimated useful life of the machine is 5 years, and it has an expected residual value of $10,000 at that time. Phillips uses straight-line depreciation

Required:

1. Calculate annual depreciation for 20X3 through 20X8 assuming that depreciation is calculated to the nearest month.

2. Repeat requirement 1 using three accounting conventions:

a. Half-year convention

b. Full-first-year convention

c. Final-year convention

3. Calculate the gain or loss on disposal assuming that the asset is unexpectedly sold for $6,000 at the end of 20X6, using net book value from requirement 1, and then from the three alternatives in requirement 2. Why is each amount different?