Three different companies each purchased a machine on January 1, 2008, for $42,000. Each machine was expected
Question:
Three different companies each purchased a machine on January 1, 2008, for $42,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $2,000. All three machines were operated for 50,000 hours in 2008, 55,000 hours in 2009, 40,000 hours in 2010, 44,000 hours in 2011, and 31,000 hours in 2012. 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 2008?
b. Which company will report the lowest amount of net income for 2010?
c. Which company will report the highest book value on the December 31, 2010, balance sheet?
d. Which company will report the highest amount of retained earnings on the December 31, 2011, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the 2010 statement of cash flows?
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...
Step by Step Answer:
Depreciation Calculation Straight Line Company A 42000 2000 5 8000 per year DoubleDeclining Balance Company B 2008 42000 0 x 2 x 20 16800 2009 42000 16800 x 4 10080 2010 42000 26880 x 4 6048 2011 4200...View the full answer
