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ANSWER A,B,C FULL SOLUTIONS

Asset 50 years 10 years BYP10-4 Lvesque Company and Ferris Company are two proprietorships that are similar in many respects. One difference is that Lvesque Company uses the straight-line method of amorti- zation and Ferris Company uses the declining-balance method at double the straight-line rate. On January 2, 2000, both companies acquired the following amortizable assets: Cost Residual Value Useful Life Building $320,000 $20,000 Equipment 110,000 10,000 Induding the appropriate amortization expense, annual net income for the companies in the years 2000, 2001, and 2002, and total income for the three years were as follows: 2000 2001 2002 Total Lvesque Company $84,000 $88,400 $90,000 $262,400 Ferris Company 68,000 76,000 85,000 229,000 At December 31, 2002, the balance sheets of the two companies are similar, but Ferris Company has fewer assets and less owner's equity than Lvesque Company. Steven Yajchuk is interested in buying one of the companies, and he comes to you for advice. Instructions With the class divided into groups, answer the following: (a) Determine the annual and total amortization recorded by each company during the three years. Round your answers to the nearest dollar. (b) Assuming that Ferris Company also used the straight-line method of amortization instead of the declining-balance method as in (a), prepare comparative income data for the three years. (c) Which company should Mr. Yajchuk buy? Why