Question

Required information [The following information applies to the questions displayed below.) Three different companies each purchased trucks on January 1, Year 1, for $62,000. Each truck was expected to last four Years or 250,000 miles. Salvage value was estimated to be $2,000. All three trucks were driven 75,000 miles in Year 1, 60,000 miles in Year 2, 50,000 miles in Year 3, and 70,000 miles in Year 4. Each of the three companies earned $51,000 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. e. Which company will report the lowest amount of cash flow from operating activities on the Year 3 statement of cash flows? activities will be for if income tax is not considered. The cash flow from operating Depreciation expense a cash flow item.

Answer 1

* Depreciation is a non cash expenditure and will be added back to the net income in the cash flows from operating activities section. If the taxes are not considered, the cash flow from operating activities will be equal for all the 3 companies.

The cash flow from operating activities will be equal for all the 3 companies if income tax is not considered.

Depreciation expense non cash a cash flow item.