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Assume you are examining the balance sheets of two companies and note the following information:
| Company A | Company B | |
|---|---|---|
| Equipment | $1,130,000 | $900,000 |
| Accumulated Depreciation | ($730,000) | ($500,000) |
| Book Value | $400,000 | $400,000 |
Maxie Smith, a student who has had no accounting courses, remarks that Company A and Company B have the same amount of equipment.
Required
In a short paragraph, explain to Maxie that the two companies do not have equal amounts of equipment. In your discussion, comment regarding the possible age of each company’s equipment. You may want to include the impact of the historical cost concept on balance sheet information, as well as the impact of different depreciation methods on book value.
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