Suppose FastShip purchased equipment on January 1, 2018, for $48,000. The expected useful life of the equipment is 10 years or 400,000 units of protection, and its residual value is $8,000. FastShip prepared the following analysis of two depreciation methods:

Data Table Method B: Double-Declining-Balance Annual Depreciation Accumulated Year Expense Depreciation Method A: Straight-Line Annual Depreciation Accumulated Expense Depreciation Book Value $ 48,000 4,000 $ 4,000 44,000 4,000 8,000 40,000 4,000 12,000 36,000 Start Book Value $ 48,000 38,400 30,720 $ $ 2018 2019 9,600 7,680 6,144 9,600 17,280 23,424 2020 24,576 A Requirements 1. Suppose the income tax authorities permitted a choice between these two depreciation methods. Which method would FastShip select for income tax purposes? Why? 2. Suppose FastShip purchased the equipment described in the table on January 1, 2018, and depreciated the equipment by using the double-declining-balance method. On July 1, 2020, FastShip sold the equipment for $42,000 cash. Record depreciation for 2020 and the sale of the equipment on July 1, 2020. Suppose FastShip purchased equipment on January 1, 2018, for $48,000. The expected useful life of the equipment is 10 years or 400,000 units of production, and its residual value is $8,000. FastShip prepared the following analysis of two depreciation methods: (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 FastShip select for income tax purposes? Why? For tax purposes, FastShip would select the double-declining-balance method because it results in the most depreciation in the earliest years of the asset's life. This method minimizes income tax payments in the early years of the asset's life and maximizes the business's cash at the earliest possible time. Requirement 2. Suppose FastShip purchased the equipment described in the table on January 1, 2018, and depreciated the equipment by using the double-declining-balance method. On July 1, 2020, FastShip sold the equipment for $42,000 cash. Record depreciation for 2020 and the sale of the equipment on July 1, 2020. (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, 2020 3,072 Depreciation Expense-Equipment Accumulated DepreciationEquipment 3,072 To update depreciation. Now record the sale of the equipment. Date Debit Credit July 1, 2020 Journal Entry Accounts and Explanations Accumulated Depreciation-Equipment Cash Equipment Gain on Sale of Equipment To record sale of equipment. 48000