Guab Corporation purchased a machine at a total cost $400,000. It has a useful life of seven years or 25,000 hours of operation, with a salvage value of $50,000. The president of the company wants to know what impact this capital expenditure will have on income over the next seven years. ( The computer is used 4,000 hours the first year and its usage increases 10 percent in each succeeding year.)
Question:
A) Prepare a schedule showing the depreciation expense and year- end carrying value of the asset for each of the next four years under each of the following methods of depreciation:
Straight line method
Units of production method
Double declining balance method
B) Why would management select one method over the other?