On January 1, 2024, two private companies that report under ASPE, Sheridan Ltd. and Cale Inc., were incorporated. Each company operates a restaurant and had identical revenues during the year of $3 million but Sheridan bought its building for $1.6 million and the related land for $600,000. The company estimated that the building would have a useful life of 20 years with no residual value. Sheridan uses the straight-line method of depreciation. Because of the building purchase, Sheridan had an outstanding 4% bank loan during the year amounting on average to $2.5 million. Cale, however, did not buy a building. Instead, it rented a building under a five-year operating lease starting on January 1, 2024, for $17,000 per month. Because of this, the company had to install leasehold improvements for $200,000, which were completed in the first few days of January. Because Cale did not have to buy a building, its outstanding 4% bank loan during 2024 averaged only $350,000. The income tax rate for both companies is 22%. Assume both companies had identical revenues and expenses except for the items noted above. (a) Your answer is incorrect. If Sheridan had net income of $165,000 for the year ended December 31, 2024, what net income did Cale have? (Round intermediate calculation and final answer to 0 decimal places, e.g. 5,275.) Cale net income
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2024, two private companies that report under ASPE, Sheridan Ltd. and Cale Inc., were incorporated. Each company operates a restaurant and had identical revenues during the year of $3 million but Sheridan bought its building for $1.6 million and the related land for $600,000. The company estimated that the building would have a useful life of 20 years with no residual value. Sheridan uses the straight-line method of
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