Question

Three different companies each purchased trucks on January 1, Year 1, for $78,000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 82,000 miles in Year 1, 52,000 miles in Year 2, 47,000 miles in Year 3 and 72,000 miles in Year 4. Each of the three companies earned $67,000 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. Answer each of the following questions. Ignore the effects of income taxes. Required a-1. Calculate the net income for Year 1. a-2. Which company will report the highest amount of net income for Year 1? b-1. Calculate the net income for Year 4. b-2. Which company will report the lowest amount of net income for Year 4? c-1. Calculate the book value on the December 31, Year 3, balance sheet. c-2. Which company will report the highest book value on the December 31, Year 3. balance sheet? d-1. Calculate the retained earnings on the December 31, Year 4, balance sheet. d-2. Which company will report the highest amount of retained earnings on the December 31, Year 4, balance sheet? e. Which company will report the lowest amount of cash flow from operating activities on the Year 3 statement of cash flows? Complete this question by entering your answers in the tabs below. Required A Required B Required Required D Required E b-1. Calculate the net income for Year 4. (Round your "Per Unit Cost" to 3 decimal places.) b-2. Which company will report the lowest amount of net income for Year 4? Net Income 16-1 Company A Comnan R

Answer 1

THERE ARE 9 SUB PARTS OF WHICH FIRST 6 SUB PARTS ARE ANSWERED HEREUNDER

Depreciation Workings:

Company A will charge = (78000-5000)/4 = 18250 each year

Company B will charge as hereunder :

Note-1 OP Value Dep @ 50%* CI Value Year-1 78000 39000 39000 Year-2 39000 19500 19500 Year-3 19500 9750 9750 Year-4** 9750 4750 5000 SLM rate = 100%/4 = 25%.DDR = 25%*2 = 50% Adjusted depreciation to ensure Book value of 5000

Company C will charge as hereunder:

Note-2 -2 Miles Driven Dep Amount Year-1 82000 23944 Year-2 52000 15184 Year-3 47000 13724 Year-4* 72000 20148 Total Life = 250000 miles Value to be depreciated = 78000-5000 = 73000 Dep/Mile = 73000/250000 = 0.292 *Adjusted depreciation to ensure Book value of 5000

Ans-(a)-1

| A B C 67000 67000 67000 Cash Revenue Depreciation Net Income -18250 48750 -39000 28000 -23944 43056

Ans-(a)-2

In Year-1 Company A will report highest Net Income of $ 48750

Ans-(b)-1

A B с 67000 67000 YEAR-4 - Cash Revenue Depreciation Net Income 67000 -4750 -18250 -20148 48750 62250 46852

Ans-(b)-2

Lowest Net Income in Year 4 will be reported by Company C of $ 46852

Ans-(c)-1

Book Value as at end of Year 3 for all the Companies

А B C 78000 78000 -18250 -39000 YEAR-3 - Cost of Truck Year-1-Dep Year-2-Dep Year-3-Dep Closing Book Value 78000 -23944 - 15184 -13724 -18250 -19500 -18250 -9750 9750 23250 25148

Depreciation is from the working tables

Ans-(c)-2

Highest Book Value in Year 3 will be reported by Company - C