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Question 3: 30% of Exam An industrial company purchases machinery for $100,000 on January 1st. The machinery is expected to last 4 years and
Question 3: 30% of Exam An industrial company purchases machinery for $100,000 on January 1st. The machinery is expected to last 4 years and have no residual value. The company is planning to depreciate it on an accelerated basis of $40,000 in Year 1, $30,000 in Year 2, $20,000 in Year 3, and $10,000 in Year 4. Questions: Part 1: What amount of depreciation expense would be charged against net income in year 3? What would be the gross value, accumulated depreciation, and net carrying value at the end of year 3? Part 2: How would Q1 change if company used straight-line method instead? Part 3: Which method results in higher net income in Year 1? Does this change in Year 4? Part 4: What should justify the choice of accelerated depreciation over straight-line? What key accounting principle/s is at work and why?
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