(a) Determine the annual and total depreciation recorded by each company during the 3 years. (b) Assuming that Kate Company also uses the straight-line method of depreciation instead of the declining-balance method as in (a), prepare comparative income data for the 3 years. (c) Which company should the investor Linda buy and Why?
(a) Determine the annual and total depreciation recorded by each company during the 3 years. (b) Assuming that Kate Company also uses the straight-line method of depreciation instead of the declining-balance method as in (a), prepare comparative income data for the 3 years. (c) Which company should the investor Linda buy and Why?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 11E: On January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an...
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Transcribed Image Text:Harbor Company and Kate Company are two business proprietorships that are similar in many respects.
One difference is that Harbor Company uses the straight-line method whereas Kate Company uses the
declining-balance method at double the straight-line rate. On January 1, 2015, both companies acquired
the depreciable assets:
Asset
Cost
Salvage Value
Useful Life
40 years
Buildings
Equipment
Including the appropriate depreciation charges, annual net income for the companies in the years 2015,
$320.000
$20,000
$110,000
S10,000
10 years
2016, and 2017 and total income for the 3 years were as follows.
2010
2011
2012
Total
S88,400
$262,400
Harbor Company
Kate Company
$84,000
$90,000
$68,000
S76.000
S85,000
$229,000
At December 31, 2017. the balance sheets of the two companies are similar except that Kate Company has
more cash than Harbor Company. Linda is a big investor who is interested in buying one of these
companies; wants to have advice from you based on fair analysis.
Required:
(a) Determine the annual and total depreciation recorded by each company during the 3 years.
(b) Assuming that Kate Company also uses the straight-line method of depreciation instead of the
declining-balance method as in (a), prepare comparative income data for the 3 years.
(c) Which company should the investor Linda buy and Why?
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