Decision CaseSuppose you are considering investing in two businesses, Shelly?s Seashell Enterprises andJeremy Feigenbaum Systems. The two companies are virtually identical, and both beganoperations at the beginning of the current year. During the year, each company purchasedinventory as follows:During the first year, both companies sold 25,000 units of inventory. In early January, bothcompanies purchased equipment costing $143,000, with a 10-year estimated useful life and a$20,000 residual value. Shelly uses the inventory and depreciation methods that maximizereported income (FIFO and straight-line). By contrast, Feigenbaum uses the inventory anddepreciation methods that minimize income taxes (LIFO and doubledeclining-balance). Bothcompanies? trial balances at December 31 included the following:RequirementsR1. Prepare both companies? income statements.R2. Write an investment letter to address the following questions for your clients: Which companyappears to be more profitable? Which company has more cash to invest in new projects? Whichcompany would you prefer to invest in? Why?Financial Statement CaseRefer to the Amazon.com financial statements, including Notes 1 and 3, in the 2009Amazon.com Financial Statements handout. Answer the following questions.RequirementsR1. Which depreciation method does Amazon.com use for reporting in the financial statements?What type of depreciation method does the company probably use for income tax purposes? Whyis this method preferable for tax purposes?R2. Depreciation expense is embedded in the operating expense amounts listed on the incomestatement. Note 3 gives the amount of depreciation expense. What was the amount ofdepreciation for 2009? Record Amazon?s depreciation expense for 2009.R3. The statement of cash flows reports the purchases of fixed assets. How much were Amazon?sfixed asset purchases during 2009? Journalize the company?s purchases of assets for cash, asreflected in the cash flow report.

Assignment 10.2 Handout Decision Case Suppose you are considering investing in two businesses, Shelly's Seashell Enterprises and Jeremy Feigenbaum Systems. The two companies are virtually identical, and both began operations at the beginning of the current year. During the year, each company purchased inventory as follows: During the first year, both companies sold 25,000 units of inventory. In early January, both companies purchased equipment costing $143,000, with a 10-year estimated useful life and a $20,000 residual value. Shelly uses the inventory and depreciation methods that maximize reported income (FIFO and straight-line). By contrast, Feigenbaum uses the inventory and depreciation methods that minimize income taxes (LIFO and doubledeclining-balance). Both companies' trial balances at December 31 included the following: Requirements R1. Prepare both companies' income statements. R2. Write an investment letter to address the following questions for your clients: Which company appears to be more profitable? Which company has more cash to invest in new projects? Which company would you prefer to invest in? Why? Financial Statement Case Refer to the Amazon.com financial statements, including Notes 1 and 3, in the 2009 Amazon.com Financial Statements handout. Answer the following questions. Requirements R1. Which depreciation method does Amazon.com use for reporting in the financial statements? What type of depreciation method does the company probably use for income tax purposes? Why is this method preferable for tax purposes? R2. Depreciation expense is embedded in the operating expense amounts listed on the income statement. Note 3 gives the amount of depreciation expense. What was the amount of depreciation for 2009? Record Amazon's depreciation expense for 2009. R3. The statement of cash flows reports the purchases of fixed assets. How much were Amazon's fixed asset purchases during 2009? Journalize the company's purchases of assets for cash, as reflected in the cash flow report