ABC and XYZ Companies purchased identical equipment having an estimated useful life of ten years. ABC uses the straight-line depreciation method and XYZ uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?
A) ABC's depreciation expense will be greater in the second year than XYZ's depreciation expense.
B) XYZ's book value will be greater than ABC's book value at the end of year one.
C) ABC's net income will be greater than XYZ's net income in year nine.
D) XYZ's book value will be less than ABC's book value at the end of year two.

Question

Quizplus · Accepted Answer

Under the double-declining-balance method, XYZ will have higher depreciation expenses in the early years compared to ABC's straight-line method, resulting in a lower book value for XYZ at the end of year two.

ABC and XYZ Companies Purchased Identical Equipment Having an Estimated