eimer Company and Lingo Company are two proprietorships that are similar in many respects. One difference is that Reimer Company uses the straight-line method and Lingo Company uses the declining-balance method at double the straight-line rate. On January 2, 2009, both companies acquired the following depreciable assets.


Asset
Cost
Salvage Value
Useful Life
Building
$320,000
$20,000
40 years
Equipment
110,000
10,000
10 years


Including the appropriate depreciation charges, annual net income for the companies in the years 2009, 2010, and 2011 and total income for the 3 years were as follows.



2009
2010
2011
Total
Reimer Company
$84,000
$88,400
$90,000
$262,400
Lingo Company
68,000
76,000
85,000
229,000


At December 31, 2011, the balance sheets of the two companies are similar except that Lingo Company has more cash than Reimer Company.

Sally Vogts is interested in buying one of the companies. She comes to you for advice.

Instructions

With the class divided into groups, answer the following.

(a)
Determine the annual and total depreciation recorded by each company during the 3 years.

(b)
Assuming that Lingo Company also uses the straight-line method of depreciation instead of the declining-balance method as in (a), prepare comparative income data for the 3 years.

(c)
Which company should Sally Vogts buy? Why?