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(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
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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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?
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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