Task: On August 3, Srini Construction purchased special purpose equipment at a cost of $1,000,000. The useful life of the equipment was estimated to be 8 years, with a residual value of $50,000.
1) Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the straight-line depreciation method (half- year convention).
2) Compute the depreciation expense to be recognized each calendar year for financial reporting purposes under the 200 percent declining-balance method (half-year convention).
3) Which of these two depreciation methods (straight-line or double- declining-balance) results in the highest net income for financial reporting purposes during the first two years of the equipments use? Explain.