Company a Uses an Accelerated Depreciation Method While Company B

question 27

Multiple Choice

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is true?

• A)Company A will have higher net income in the early years but Company B will have higher net income towards the end of the asset's useful life.
• B)Company A will consistently have the larger net income until residual value is reached.
• C)Company B will have higher net income in the early years but Company A will have higher net income towards the end of the asset's useful life.
• D)Company B will consistently have the larger net income until residual value is reached.

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Definitions:

Weighted-Average Method

A cost accounting method that calculates the cost per unit by dividing the total costs by the total number of units produced, incorporating costs from previous periods.

Equivalent Units of Production

A calculation method used in cost accounting that determines the units produced during a period, adjusting for incomplete units.

Conversion Costs

Costs associated with converting raw materials into finished goods, primarily comprising labor and overhead expenses.

Cost Reconciliation

A process used in cost accounting to verify the difference between the cost of inputs and the cost of outputs within a reporting period.