Question

Required Information (The following information applies to the questions displayed below] Three different companies each purchased trucks on January 1, 2018, for $88.000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $6.000. All three trucks were driven 77.000 miles In 2018, 57,000 miles in 2019,52,000 miles In 2020, and 72,000 miles in 2021. Each of the three companies earned $77,000 of cash revenue during each of the four years. Company A uses straight-line depreciation, company B uses double- declining balance depreciation, and company Cuses units-of-production depreciation Answer each of the following questions. Ignore the effects of Income taxes. b-1. Calculate the net Income for 2021? (Round "Per Unit Cost" to 3 decimal places.) Net Income Company A Company B Company C b-2 Which company will report the lowest amount of net Income for 2021? o Company A O Company B O Company O All of the choices

Answer 1

1. Calculate the net income for 2021? Answer: Earning Depreciation Net Income Company A $77,000.00 $-20,500.00 $ 56,500.00 Company B $ 77,000.00 $ -5,000.00 $ 72,000.00 Company C $77,000.00 $ -20,992.00 $56,008.00 2. Which company will report the lowest amount of net income for 2021? Answer: Option C - Company C Company C will report lowest income of $56,008 as computed above.

Working Note: Depreciation computation for 2021: Cost of the Truck $ 88,000.00 Useful Life 4 Years Salvage Value $ 6,000.00 Straight Line Depreciation = (88,000-6,000)/4 = $20,500 Double Declining Balance = 200% of Depreciation = (1/4)X2 = 50% Year Annual Depre Accumulated Book Value 2018 $ 44,000.00 $ 44,000.00 $ 44,000.00 2019 $ 22,000.00 $ 66,000.00 $ 22,000.00 2020 $ 11,000.00 $ 77,000.00 $ 11,000.00 2021 $ 5,000.00 $ 82,000.00 $ 6,000.00 Units of Production = (88,000-6,000)X64,000/2,50,000 = $ 20,992 Here miles for 2021 has been took as 64,000 as against 72,000 because the total miles year-on-year has been 258,000. This total should not exceed 250,000 mile and hence 8,000 miles has been decreased from 72,000 miles of 2021. If you need any further explanation, kindly request in the comment section, glad to be helpful.