Swanson & Hiller. Inc., purchased a new machine on September 1, 2006 at a cost of $108,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $8.000.

Instructions

a. Prepare a complete depreciation schedule beginning with calendar year 2006, under each of the methods listed below (assume that the half-year convention is used):

(1) Straight-line.

(2) 200 percent declining-balance

(3) 150 percent declining-balance, switching to straight-line when that maximizes the expense.

b. Which of the three methods computed in part a is most common for financial reporting purposes? Explain.

c. Assume that Swanson & Hiller sells the machine on December 31. 2009 for $28.000 cash. Compute the resulting gain or loss from this sale under each of the depreciation methods used -in part a. Does the gain or loss reported in the company's income statement have any direct cash effects? Explain.