The Sonny Clinic purchased a new surgical laser for $800,000. The estimated salvage value is $80,000. The laser has a useful life of six years and the clinic expects to use it 100,000 hours. It was used 15,000 hours in year 1; 20,000 hours in year 2; 24,000 hours in year 3; 10,000 hours in year 4; 20,000 hours in year 5; 11,000 hours in year 6

Instructions

(a) Compute the annual depreciation for each of the six years under each of the following methods:

(1) straight-line.

(2) units-of-activity.

(b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer.

(c) Which method would result in the lowest reported income in the first year? Which method would result in the lowest total reported income over the five-year period?