Brinkley Leasing purchases farm machinery and leases it to farms. At the beginning of 2017 the company paid $1,000,000 for a fleet of tractors, and estimated their useful lives at five years. Brinkley immediately leased the vehicles for an annual charge of $250,000. Assume that all lease payments were made, the vehicles were disposed of after five years, and at the end of each year the following fair market values for the fleet were estimated.
December 31, 2017 ..................$790,000
December 31, 2018 ..................$622,000
December 31, 2019 ..................$432,000
December 31, 2020 ..................$227,000
December 31, 2021 ................................0
a. Compute the net income and balance sheet value associated with the fleet for each year using the matching concept and assuming that Brinkley uses straight-line depreciation.
b. Compute the net income and balance sheet value associated with the fleet for each year using the matching concept, assuming that Brinkley uses double-declining-balance depreciation.
c. Compute net income and balance sheet value associated with the fleet for each year using the fair market value concept.
d. Discuss the differences.