Company a Uses an Accelerated Depreciation Method While Company B

question 3

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 correct?

• 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:

Compounded Semi-Annually

The process of applying interest to a principal sum twice a year, resulting in interest earning interest over time.

Monthly Payments

Recurring payments made every month towards the repayment of loans or financial obligations, such as mortgages or personal loans.

Investing

Distributing monetary resources in the hope of creating financial gain or earnings.

Compounded Monthly

Pertains to the process where interest is calculated monthly and added to the initial principal amount of the investment or debt.