The Nichols clinic purchased a new surgical laser for 96,000. The estimated salvage value is 6,000. The laser has a useful life of 5 years and the clinic expects to use it at 10,000 hours. It was used 1,600 hours in year 1. 2,200 hours in year 2. 2,4000 in year 3. 2,300 hours in year 4. 2,000 hours in year 5.
Instructions: Compute the annual depreciation for each of the five 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 appropiate? 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 5 year period?