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 72000 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. e. Which company will report the lowest amount of cash flow from operating activities on the 2020 statement of cash flows? if income tax is not considered. The cash flow from operating activities will be Depreciation expense for a cash flow item

Answer 1

Based on the information available in the question, we can answer as follows:-

Step 1:- Calculate the Depreciation expense for each of the trucks :-

Company A truck:-

(Cost of the asset - Salvage value)/Estimated life of the asset

=($88,000 - $6,000)/4 years

=$82,000/4 years

Depreciation expense = $20,500 per year

Company B truck:-

=100/4 years

=25% * 2

=50%

Company B Truck - $88,000 * 50%

Company B Truck Depreciatione expense = $44,000

Company C Truck:-

= (Cost of the asset - Salvage value)/Estimated miles * Miles driven

= ($88,000 - $6,000)/250,000 * 52,000 miles

= $0.328 per mile * 52,000 miles

= $17,056

Company C Depreciation expense = $17,056

The cash flow from operating activitites will be The same for all the 3 companies if the income tax is considered. Depreciation expense is not a cash flow item.

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