Question

During the year, both Company A and Company B purchased similar long-lived assets that cost $100,000. Company A used straight-line and Company B used double-declining balance. Given net income before depreciation is the same, which company would report the higher net income after depreciation?

Answer 1

Company A would report the higher net income after depreciation compared to Company B due to the straight-line depreciation method it uses.

Step-by-step explanation:

When comparing the net income after depreciation of Company A and Company B, it can be seen that the net income of Company A will be higher. This is because Company A uses straight-line depreciation method, which means that the depreciation expenses will be spread evenly over the useful life of the asset. On the other hand, Company B uses double-declining balance depreciation method, where the depreciation expenses are higher in the earlier years and decrease over time. Therefore, the higher depreciation expenses of Company B will result in lower net income after depreciation compared to Company A.