Question 3 (14 Marks). On January 1, 2019 Safe Consulting Inc. (SCI) acquired heavy construction equipment for $1,010,000. SCI expects that the residual value of the equipment at the end of its 5-year life will be $200,000 and expects that equipment will operate for a total of 90,000 equipment working hours. Actual equipment working hours used for the years ended December 31, 2019 and December 31, 2020 are 15,000 and 24,000, respectively.

Required:

a) Compute the depreciation expense for the years ended December 31, 2019 and December 31, 2020 under the Straight line, Declining Balance at 30% rate, and the Units of Production methods and insert your answers into the table below. Round to the nearest whole number. (6 Marks)

Depreciation Method	Depreciation Expense for 2019	Depreciation Expense for 2020
Straight Line Method
Declining Balance (30% rate)
Units-of-Production Method

2. Assuming that the managers bonus depends on the total reported income for the first two years (i.e. for 2019 and 2020), which method of depreciation would the manager prefer? Briefly explain why? (2 marks)

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3. Assume that SCI used the straight-line method of depreciation and decided to sell the equipment on July 1, 2021 for $800,000. Calculate the amount of the gain or loss on the sale of equipment below and state whether it is a gain or loss: (2 Marks)

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4. Assume that on January 1, 2021, SCI determined that the total useful life of equipment should be 8 years instead of 5 years, and the straight line method of depreciation is used. The residual value is unchanged. Compute the following (2 marks each):

1.The book value of the equipment on January 1, 2021:______________________________

2. The depreciation expense for 2021:__________ ___________________________________