The Simon Company and the Allen Company each boughta new delivery truck on January 1. Both companiespaid exactly the same cost, $30,000, for their respectivevehicles. Two years later, on December 31, the book valueof Simon’s truck was less than the Allen Company’s bookvalue for the same vehicle. Which of the following areacceptable explanations for the difference in book value?a. Both companies elected straight-line depreciation, butthe Simon Company used a longer estimated life.b. The Simon Company estimated a lower residual value,but both estimated the same useful life and both electedstraight-line depreciation.c. Because GAAP specifies rigid guidelines regarding thecalculation of depreciation, this situation is not possible.d. None of the above explain the difference in book value.
The Simon Company and the Allen Company each bought
a new delivery truck on January 1. Both companies
paid exactly the same cost, $30,000, for their respective
vehicles. Two years later, on December 31, the book value
of Simon’s truck was less than the Allen Company’s book
value for the same vehicle. Which of the following are
acceptable explanations for the difference in book value?
a. Both companies elected straight-line
the Simon Company used a longer estimated life.
b. The Simon Company estimated a lower residual value,
but both estimated the same useful life and both elected
straight-line depreciation.
c. Because GAAP specifies rigid guidelines regarding the
calculation of depreciation, this situation is not possible.
d. None of the above explain the difference in book value.
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