Critical Thinking 10-05 a-c

Pinson Company and Estes Company are two proprietorships that are similar in many respects. One difference is that Pinson Company uses the straight-line method and Estes Company uses the declining-balance method at double the straight-line rate. On January 2, 2018, both companies acquired the depreciable assets shown below.

Asset		Cost		Salvage Value			Useful Life
Buildings		$250,000		$10,000			40 years
Equipment		104,000		4,000			10 years

Including the appropriate depreciation charges, annual net income for the companies in the years 2018, 2019, and 2020 and total income for the 3 years were as follows.

		2018		2019		2020		Total
Pinson Company		$77,000		$81,400		$83,000		$241,400
Estes Company		60,000		68,000		77,000		205,000

At December 31, 2020, the balance sheets of the two companies are similar except that Estes Company has more cash than Pinson Company. Lynda Peace is interested in buying one of the companies. She comes to you for advice. Answer the following.

Determine the annual depreciation recorded by each company during the 3 years. (Round answers to 0 decimal places, e.g. 2,125.)

		Pinson Company		Estes Company
2018		$		$
2019		$		$
2020		$		$

Determine the total depreciation recorded by each company during the 3 years. (Round intermediate calculation and final answers to 0 decimal places, e.g. 2,125.)

		Total Accumulated Depreciation
Pinson Company		$
Estes Company		$

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Assuming that Estes 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. (Round answers to 0 decimal places, e.g. 2,125.)

Year		Pinson Company Net Income		Estes Company Net Income
2018		$		$
2019		$		$
2020		$		$

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Which company should Lynda Peace buy? Pinson Company or Estes Company