Chapter 9, Problem 10MC

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?

1. a. Both companies elected straight-line depreciation, but the Simon Company used a longer estimated life.
2. b. The Simon Company estimated a lower residual value, but both estimated the same useful life and both elected straight-line depreciation.
3. c. Because GAAP specifies rigid guidelines regarding the calculation of depreciation, this situation is not possible.
4. d. None of the above explain the difference in book value.