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 Buildings Equipment $110,000 $320,000 $20,000 40 years 10 years $10,000 Including the appropriate depreciation charges, annual net income for the companies in the years 2015, 2016, and 2017 and total income for the 3 years were as follows. 2010 2011 2012 Total $84,000 $262,400 Harbor Company Kate Company At December 31, 2017, the balance sheets of the two companies are similar except that Kate Company has $88,400 $90,000 $68,000 $76,000 $85,000 $229,000 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?

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 Buildings Equipment $110,000 $320,000 $20,000 40 years 10 years $10,000 Including the appropriate depreciation charges, annual net income for the companies in the years 2015, 2016, and 2017 and total income for the 3 years were as follows. 2010 2011 2012 Total $84,000 $262,400 Harbor Company Kate Company At December 31, 2017, the balance sheets of the two companies are similar except that Kate Company has $88,400 $90,000 $68,000 $76,000 $85,000 $229,000 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?

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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On May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.
On January 1, 2014, Klinefelter Company purchased a building for 520,000. The building had an estimated life of 20 years and an estimated residual value of 20,000. The company has been depreciating the building using straight-line depreciation. At the beginning of 2020, the following independent situations occur: a. The company estimates that the building has a remaining life of 10 years (for a total of 16 years). b. The company changes to the sum-of-the-years-digits method. c. The company discovers that it had ignored the estimated residual value in the computation of the annual depreciation each year. Required: For each of the independent situations, prepare all journal entries related to the building for 2020. Ignore income taxes.
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On July 1, 2018, Mundo Corporation purchased factory equipment for 50,000. Residual value was estimated at 2,000. The equipment will be depreciated over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, Mundo should record 2019 depredation expense of: a. 7,680 b. 9,000 c. 9,600 d. 10,000