Bob & Robin, Inc., purchased a new machine on October 1, 2001, at a cost of $144,000. The machines estimated useful life at the time of the purchase was 6 years, and its residual value was $12,000.

Instructions

a. Prepare a complete depreciation schedule, beginning with calendar year 2001, under each of the methods listed below (assume that the half-year convention is used):

1. Straight-line.

2. 200% declining-balance.

3. 150% declining-balance (not switching to straight-line).

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

c. Assume that Bob & Robin sell the machine on December 31, 2004, for $40,000 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 companys income statement have any direct cash effects? Explain.