The information in the following exhibit comes from the notes to the financial statements of QuickBrush Company
Question:
Determine which company has the higher quality of earnings by discussing each of the threenotes.
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
QuickBrush SmileWhite The company amortizes goodwill The company amortizes goodwill over 5 years. Property, plant, and equipment The company uses a straight-line depreciation method over the economic lives of the assets, which range from 5 to 20 years for buildings. The company uses a bad debt allowance of 2% of accounts receivable. e company uses an accelerated depreciation method over the economic lives of the assets, which range from 5 to 20 years for The company uses a bad debt allowance of 5% of accounts receivable receivable
Step by Step Answer:
SmileWhite has higher quality of earnings for the following reasons Smil...View the full answer
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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