Three different companies each purchased a machine on January 1, 2016, for $64,000. Each machine was expected
Question:
Three different companies each purchased a machine on January 1, 2016, for $64,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $6,000. All three machines were operated for 50,000 hours in 2016, 55,000 hours in 2017, 40,000 hours in 2018, 44,000 hours in 2019, and 31,000 hours in 2020. 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 2016?
b. Which company will report the lowest amount of net income for 2018?
c. Which company will report the highest book value on the December 31, 2018, balance sheet?
d. Which company will report the highest amount of retained earnings on the December 31, 2019, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2018 statement of cash flows?
Salvage ValueSalvage 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...
Step by Step Answer:
Depreciation Calculation Straight Line Company A 64000 6000 5 11600 per year DoubleDeclining Balance Company B 2016 640000 x 2 x 20 25600 2017 6400025600 x 4 15360 2018 6400040960 x 4 9216 2019 640005...View the full answer
Fundamental Financial Accounting Concepts
ISBN: 978-0078025907
9th edition
Authors: Thomas Edmonds, Christopher Edmonds
