3. Explain the effect of depreciation on cash flows. AP8-3 Computing a Basket Purchase Allocation, and Recording Depreciation under Three Alternative Methods (P8-4) LO8-2, 8-3 At the beginning of the year, Labinski Inc. bought three used machines from Santoro Corporation for a total cash price of $62,000. Transportation costs on the machines were $3,000. The machines were immediately overhauled and installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts. An appraiser was requested to estimate their fair value at the date of purchase (prior to the overhaul and installation). The carrying amounts shown on Santoro's books are also available. The carrying amounts, appraisal results, installation costs, and renovation expenditures follow: Machine A Machine B Machine C Carrying amount on Santoro's books $10,500 $28,000 $26,000 Appraisal value 11,500 32,000 28.500 Installation costs 800 1,100 1,100 Renovation costs prior to use 600 1,400 1,600 By the end of the first year, each machine had been operating 7,000 hours.