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Che Required information [The following information applies to the questions displayed below.] Three different companies each purchased trucks on January 1, 2018, for $80,000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $4,000. All three trucks were driven 78,000 miles in 2018, 55,000 miles in 2019,50,000 miles in 2020, and 70,000 miles in 2021. Each of the three companies earned $69,000 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. d-1. Calculate the retained earnings on the December 31, 2021, balance sheet? Retained Earnings Company A Company B Company C d-2. Which company will report the highest amount of retained earnings on the December 31, 2021 balance sheet? o Company A Company B Company All companies have the same retained earnings < Prey 6 7 of 10 !!! Next >

Answer 1

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Workings for Question d-1		Note
Purchase cost of trucks	80,000.00	G
Less: Residual Value	4,000.00
Depreciable Cost	76,000.00	A
For Company A
Straight Line Method
Depreciable Value	76,000.00	See A
Life	4.00	B
Annual depreciation	19,000.00	C=A/B
Depreciation for 4 years	76,000.00	D=C*4
Annual cash revenues	69,000.00	E
cash revenues for 4 years	276,000.00	F=E*4
Retained earnings as on Dec 31,2021
Cash revenues for 4 years	276,000.00	See F
Less: Depreciation for 4 years	76,000.00	See D
Retained earnings as on Dec 31,2021	200,000.00

For Company B				K	See J	L=J*K		This is $ 80,000- Accumulated depreciation.
Double Declining Method			Date	Depreciable amount	Depreciation rate	Depreciation Expense	Accumulated depreciation	Carrying amount
Total cost of Truck	80,000.00	See G	2018	80,000.00	50.00%	40,000.00	40,000.00	40,000.00
Life	4.00	See B	2019	40,000.00	50.00%	20,000.00	60,000.00	20,000.00
Annual depreciation	20,000.00	H=G/B	2020	20,000.00	50.00%	10,000.00	70,000.00	10,000.00
Depreciation rate	25.00%	I=H/G	2021	10,000.00	50.00%	5,000.00	75,000.00	5,000.00
Double Depreciation %	50.00%	J=I*2

Retained earnings as on Dec 31,2021
Cash revenues for 4 years	276,000.00	See F
Less: Depreciation for 4 years	75,000.00	See depreciation table above
Net Income for 4 years	201,000.00	M
Book value of truck on 31st Dec 2021	5,000.00	See depreciation table above
Less: Sale value of truck	4,000.00
Loss on sale of truck	1,000.00	N
Retained earnings as on Dec 31,2021	200,000.00	O=M-N

For Company C				R	See Q	S=R*Q		This is $ 80,000- Accumulated depreciation.
Units of Production Method			Date	Miles driven	Depreciable rate	Depreciation Expense	Accumulated depreciation	Carrying amount
Depreciable Value	76,000.00	See A	2018	78,000.00	0.30	23,712.00	23,712.00	56,288.00
Life (miles)	250,000.00	P	2019	55,000.00	0.30	16,720.00	40,432.00	39,568.00
Depreciation per unit	0.30	Q=P/A	2020	50,000.00	0.30	15,200.00	55,632.00	24,368.00
			2021	70,000.00	0.30	21,280.00	76,912.00	3,088.00

Retained earnings as on Dec 31,2021
Cash revenues for 4 years	276,000.00	See F
Less: Depreciation for 4 years	76,912.00	See depreciation table above
Net Income for 4 years	199,088.00	T
Book value of truck on 31st Dec 2021	3,088.00	See depreciation table above
Less: Sale value of truck	4,000.00
Gain on sale of truck	(912.00)	U
Retained earnings as on Dec 31,2021	200,000.00	V=T-U

Answer d-2

As we can see that irrespective of the depreciation method used if the trucks are used till their useful life then retained earnings of all there companies will be same.