Trevor Company purchased a new equipment on January 1^st, 2015 for $5.2 million. The estimated useful life is five years and the residual value is $200,000.

1. Compute depreciation expense for year 2015 and 2016
2. Using straight line method
3. Using double declining balance method

2. If the equipment is likely to provide equal benefits during each year of its useful life, which of the two depreciation methods would be more appropriate under GAAP?

3. Assume that the company uses straight line deprecation method. It sell the equipment on January 1, 2017 for $4m.

1. How much is the gain or loss on the sale of the equipment?
2. Record all transactions related to the equipment:

• purchase on January 1, 2015
• depreciation for 2015 and for 2016
• sale of equipment on January 1, 2017