Three different companies each purchased trucks on January 1, 2018, for $50,000. Each truck was expected to

Question:

Three different companies each purchased trucks on January 1, 2018, for $50,000. Each truck was expected to last four years or 200,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 66,000 miles in 2018, 42,000 miles in 2019, 40,000 miles in 2020, and 60,000 miles in 2021. Each of the three companies earned $40,000 of cash revenue during each of the four 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 2018?

b. Which company will report the lowest amount of net income for 2021?

c. Which company will report the highest book value on the December 31, 2020, balance sheet?

d. Which company will report the highest amount of retained earnings on the December 31, 2021, balance sheet?

e. Which company will report the lowest amount of cash flow from operating activities on the 2020 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...