Givens Company and Runge Company are two companies that are similar in many respects. One difference is that Givens Company uses the straight-line method and Runge Com- =, pany uses the declining-balance method at double the straight-line rate. On January 2, 2012, both companies acquired the depreciable assets shown below.

Asset Cost Salvage Value Useful Life Buildings $320,000 $20,000 40 years Equipment 125,000 10,000 10 years Including the appropriate depreciation charges, annual net income for the companies in the years 2012, 2013, and 2014 and total income for the 3 years were as follows.

2012 2013 2014 Total Givens Company $84,000 $88,400 $90,000 $262,400 Runge Company 68,000 76,000 85,000 229,000 At December 31, 2014, the balance sheets of the two companies are similar except that Runge Company has more cash than Givens Company.

Linda Yanik is interested in buying one of the companies. She comes to you for advice.

Instructions With the class divided into groups, answer the following.

(a) Determine the annual and total depreciation recorded by each company during the 3 years.

(b) Assuming that Runge Company also uses the straight-line method of depreciation instead of the declining-balance method as in (a), prepare comparative income data for the 3 years.

(c) Which company should Linda Yanik buy? Why?
Communication Activity