Indigo Corporation and Blue Corporation, two companies of roughly the same size, are both involved in the manufacture of shoe-tracing devices. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the information shown below. For

Which of the following statements is (are) correct?a. Accumulated depreciation represents a cash fund beingaccumulated for the replacement of plant assets.b. The cost of a machine includes the cost of repairingdamage to the machine during the installation process.c. A company may use different depreciation methods inits financial statements and its income tax return.d. The use of an accelerated depreciation method causesan asset to wear out more quickly than does use of thestraight-line method.

With direct write off, one writes off amounts from sales in the past are determined to be uncollectible. An estimate writes off estimated amounts of current sales that are expected to be uncollectible. Does that help you determine the accounting principle used for estimates? And a fixed asset question: when an asset is fully depreciated (think Kate's Cards after four years when the equipment with cost of $4,800 has accumulated depreciation of $4,800), should a company keep it on the books? Why or why not?

The following is a note accompanying a recent financial statement of International PaperCompany :Plant, Properties, and EquipmentPlant, properties, and equipment are stated at cost less accumulated depreciation. Expenditures forbetterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The units-of-production method of depreciation is used for major pulp and paper mills, and the straight-line method is used for other plants and equipment. Annual straight-line depreciation rates are, for buildings—21⁄2 percent to 81⁄2 percent, and for machinery and equipment—5 percent to 33 percent.Instructions a. Are the depreciation methods used in the company’s financial statements determined by cur-rent income tax laws? If not, who is responsible for selecting these methods? Explain. b. Does the company violate the consistency principle by using different depreciation methodsfor its paper mills and wood products facilities than it uses for its other plant and…