Three different companies each purchased a machine on January 1, 2013, for $64,000. Each machine was expected

Question:

Three different companies each purchased a machine on January 1, 2013, for $64,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $4,000. All three machines were operated for 50,000 hours in 2013, 55,000 hours in 2014, 40,000 hours in 2015, 44,000 hours in 2016, and 31,000 hours in 2017. Each of the three companies earned $30,000 of cash revenue during each of the five years. Company A uses straight-line depreciation, company B uses double-declining-balance depreciation, and company C uses units-of-production depreciation.

Required

Answer each of the following questions. Ignore the effects of income taxes.

a. Which company will report the highest amount of net income for 2013?

b. Which company will report the lowest amount of net income for 2015?

c. Which company will report the highest book value on the December 31, 2015, balance sheet?

d. Which company will report the highest amount of retained earnings on the December 31, 2016, balance sheet?

e. Which company will report the lowest amount of cash flow from operating activities on the 2015 statement of cash flows?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...