Sawtooth Manufacturing LLC, manufactures stairway railings. They purchased a $15,000 lathe on January 2, 2015. The lathe was estimated to have a salvage value of $1,000 at the end of its five year useful life. Management is trying to decide on a depreciation method to use for this new asset.

a. Which of the three depreciation methods best satisfies the matching principle? DEFEND YOUR ANSWER!

b. Under which of the three methods will Sawtooth Manufacturing have the highest net income for 2015 and 2016. SHOW CALCULATIONS!

c. If Sawtooth wants to minimize its tax liability, which depreciation method should the company use for 2015 and 2016? EXPLAIN YOUR ANSWER!

d. Why do you think the government allows a company to use different depreciation methods for financial reporting and taxes? Do you think using different methods for financial reporting and taxes is ethical? EXPLAIN YOUR ANSWER!