Chapter 8, Problem 1MCQ

Miga Company and Porter Company both bought a new delivery truck on January 1, 2014. Both companies paid exactly the same cost, $30,000. for their respective vehicles. As of December 31, 2017, the net book value of Miga’s truck was less than Porter Company’s net book value for the same vehicle. Which of the following is an acceptable explanation for the difference in net book value?

1. a. Miga Company estimated a lower residual value, but both estimated the same useful life and both elected straight-line depreciation.
2. b. Both companies elected straight-line depredation, but Miga Company used a longer estimated life.
3. c. Because GAAP specifies rigid guidelines regarding the calculation of depreciation, this situation is not possible.
4. d. Miga Company is using the straight-line method of depreciation, and Porter Company is using the double-declining-balance method of depreciation.