On January 1, Year 1, both Jones Company and Smith Company purchased an identica
ID: 2338964 • Letter: O
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 Jones will report a lower amount of net Income on lts Year 1 financial statements than Smith would report. Jones will report a higher amount of net Income on its Year 10 financial statements than Smith would report. Both companles will report the same amount of total assets on thelr Year 10 financial statements. All of the answers are true.Explanation / Answer
Jones company estimated 8 year of life so they will allocated more depreciation then smith company.
Jone company's depreciation expense is high so net income will be lower and smith company's depreciation is lower so net income will high
So answer is a) Jones will report a lower amount of net income on its year 1 financial statements than smith would report