Question

On January 1, Year 1, both Jones Company and Smith Company purchased an identical set of office furniture. Both companies assumed a zero salvage value even though Jones Company estimated an eight year useful life while Smith expected a ten year life. All other things being equal, what is the difference in the estimated useful life of the office furniture between Jones Company and Smith Company?

Answer 1

The difference in estimated useful life of the office furniture between Jones Company and Smith Company is two years, with Jones estimating an eight-year life and Smith a ten-year life.

Step-by-step explanation:

The student asked about the difference in the estimated useful life of office furniture between Jones Company and Smith Company. Both companies purchased identical office furniture sets on January 1, Year 1, with Jones Company estimating an eight-year useful life and Smith Company a ten-year life.

Assuming a zero-salvage value for both, the difference in the estimated useful life is simply the difference in the years of estimation, which in this case is two years. Jones Company will depreciate their office furniture faster than Smith Company, implying that Smith Company will spread out the cost over a longer time compared to Jones Company.