An item of equipment acquired on January 1 at a cost of $50,000 has an estimated life of five years and an estimated salvage of $10,000.

Required

From a management perspective, from among the straight-line method, declining-balance method, and sum-of-the-years-digits method of depreciation, which method should be chosen for the financial statements if income is to be at a maximum the first year? Which method should be chosen for the income tax returns, assuming that the tax rate stays the same each year? Explain and show computations.