Question

Alpha Corporation and Beta Corporation have just purchased identical pieces of equipment. Each firm estimates that the equipment will have a 5-year service life and no salvage value. Alpha depreciates all of its assets using the straight-line method, whereas Beta depreciates its assets using the sum-of-the-years’-digits method; otherwise, the two firms are identical in every way. Given this information, which of the following statements is accurate?
A : If both firms keep the equipment for 5 years, Alpha’s five-year total for depreciation expense will be lower than Beta’s.
B : Alpha’s net income will be lower that Beta’s during the fourth year of the equipment’s service life.
C : If both firms sell the equipment after 3 years, Alpha is more likely to report a gain on the transaction than Beta.
D : Alpha’s depreciation expense will be higher than Beta’s during the first year of the equipment’s service life.

Answer 1

Answer:

B) Alpha’s net income will be lower that Beta’s during the fourth year of the equipment’s service life.