Method A: Straight-Line Method B: Double-Declining-Balance Annual Annual Accumulated Depreciation Accumulated Depreciation Expense Year Depreciation Book Value Expense Depreciation Book Value Start $ 41,000 $ 41,000 2016 3,500 $ 37,500 $ 8,200 $ 8,200 32,800 3,500 7,000 2017 3,500 34,000 6,560 14,760 26,240 2018 3,500 10,500 30,500 5,248 20,008 20,992 Suppose ShipShape purchased equipment on January 1, 2016, for $41,000. The expected useful life of the equipment is 10 years or 350,000 units of production, and its residual value is $6,000. ShipShape prepared the following analysis of two depreciation methods: B Click the icon to view the analysis.) Read the requirements. Requirement 1. Suppose the income tax authorities permitted a choice between these two depreciation methods. Which method would ShipShape select for income tax purposes? Why? years of the asset's life. This method minimizes income tax payments in the years of the For tax purposes, most companies select the method because it results in the most depreciation in the asset's life and maximizes the business's cash at the earliest possible time. Requirement 2. Suppose ShipShape purchased the equipment described in the table on January 1, 2016. Management has depreciated the equipment by using the double-declining-balance method. On July 1, 2018, ShipShape sold the equipment for $30,000 cash. Record depreciation for 2018 and the sale of the equipment on July 1, 2018. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) First, record depreciation to the date of sale. Journal Entry Date Accounts and Explanations Debit Credit July 1, 2018 Now record the sale of the equipment. Journal Entry Date Accounts and Explanations Debit Credit July 1, 2018