Coltrane Corporation is a newly formed company and has purchased a building, office equipment, a machine to be used in production, and three company cars. The company is considering which depreciation method to select for each asset for financial reporting. The president wants to report the highest possible net income and pay the lowest possible income taxes. He also argues that the building is unlikely to go down in value in the next five years, so there is no need to depreciate it for that time. He wants to

“save the depreciation” until later in the life of the building, when the value will go down. The chief accountant agrees that it is possible to minimize the payment of income taxes, but argues that it is incorrect to select a depreciation method in order to maximize net income or to relate to the value of the asset. She also points out that the value of the cars decreases significantly as soon as they are driven away from the dealer.

Required: (1) Evaluate the correctness of each argument.

(2) Which depreciation method do you think the chief accountant will likely suggest for each asset? Explain your reasoning.

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