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 thedeclining-balance method at double the straight-line rate. On January 1, 2015, both companies acquiredthe depreciable assets:AssetCostSalvage ValueUseful Life40 yearsBuildingsEquipmentIncluding the appropriate depreciation charges, annual net income for the companies in the years 2015,$320.000$20,000$110,000S10,00010 years2016, and 2017 and total income for the 3 years were as follows.201020112012TotalS88,400$262,400Harbor CompanyKate Company$84,000$90,000$68,000S76.000S85,000$229,000At December 31, 2017. the balance sheets of the two companies are similar except that Kate Company hasmore cash than Harbor Company. Linda is a big investor who is interested in buying one of thesecompanies; 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 thedeclining-balance method as in (a), prepare comparative income data for the 3 years.(c) Which company should the investor Linda buy and Why?

Depreciation is the reduction or depletion in the value of fixed assets over its useful life. It…

(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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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