Gaub Corporation purchased a machine at a total cost of $400,000. As the accountant for the company, you estimated 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. (Assume the computer is used 4,000 hours the first year and that its usage increases 10 percent in each succeeding year.)
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:
1. Straight-line method
2. Units-of-production method
3. Double-declining-balance method
B. Why would management select one method over another?
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