Problem 6-28 Determining the effect of depreciation expense on financial statements
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?
Click here for the solution: Three different companies each purchased a machine on January 1, 2008, for $42,000
