Client build #3

Suppose you are an investment advisor and are looking at two companies to recom-mend to your clients, Shelly's Seashell Enterprises and Jeremy Feigenbaum Systems. The two companies are virtually identical, and both began operations at the begin-ning of the current year. In early January, 2014, both companies purchased equipment costing $143,000, with a 10-year estimated useful life and a $20,000 residual value. Shelly uses the straight-line depreciation method. By contrast, Feigenbaum uses the double-declining-balance method. Both companies' trial balances at December 31, 2014, included the following:

Sales Revenue 270,000 Cost of Goods Sold 70,000 Operating Expenses (other than depreciation) 80,700

1. Prepare both companies' income statements. (Disregard income tax expense.) 2.Write a letter to address the following questions for your clients: Which com-pany appears to be more profitable? Which company would you prefer to invest in? Why?