Question
Linda Corporation accounts for its investment in Hutchins Company using the equity method. Part of the assets that Linda acquired with Hutchins is machinery with
Linda Corporation accounts for its investment in Hutchins Company using the equity method. Part of the assets that Linda acquired with Hutchins is machinery with a carrying amount of $1,500,000 and a fair value of $3 million. Hutchins's normal asset depreciation policy is the straight-line method with a 5-year life. Linda's asset depreciation policy is the double-declining-balance method. Which of the following statements is correct? A. Linda depreciates the $1,500,000 excess amount by the straight-line method using the 10-year life because 10 years is double the 5 years it normally uses. B. Linda depreciates the $1,500,000 excess amount by the straight-line method using the 5-year life. C. Linda depreciates the $1,500,000 excess amount by the double-declining-balance method. D. Linda has an option of using its depreciation method or its investee's depreciation method.
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