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Three different companies each purchased trucks on January 1, 2018, for $76,000. Each truck was expected...

Three different companies each purchased trucks on January 1, 2018, for $76,000. 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 81,000 miles in 2018, 55,000 miles in 2019, 46,000 miles in 2020, and 71,000 miles in 2021. Each of the three companies earned $65,000 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?

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Expert Solution

Solution - Calculation of Retained Earnings on december 31, 2021

Cost of Each Truck = $76000

Estmated Life of each truck = 4 years

Salvage value of all the trucks = $6000

Company A - Straight line Method

Depreciation = (Asset cost - Salvage value)/Estimated Life

Depreciation per year = ($76000-$6000)/4 = $17500

Depreciation for 4 years = $17500*4 = $70000

Company B - Double Declining Method

Depreciation rate under straight line method = 25% as per 4 years

Depreciation under double declining method = 25%*2 = 50%

Particulars Asset cost Depreciation @ 50%
Year 2018 $76000 $38000
Year 2019 $38000 $19000
Year 2020 $19000 $9500
Year 2021 $9500

$3500

($70000 - $38000 - $19000 - $9500)
Total $70000

Company C - Units of Production Method

Depreciable amount = ($76000 - $6000) = $70000

Depreciation = Depreciable amount*(Miles used in current year/Total Miles)

Particulars Amount
Depreciation in 2018 ($70000*81000/250000) $22680
Depreciation in 2019 ($70000*55000/250000) $15400
Depreciation in 2020 ($70000*46000/250000) $12880
Depreciation in 2021 ($70000 - $22680 - $15400 - $12880) $19040
Total Depreciation charged $70000

Calculation of retained earnings

Particulars Company A Company B Company C

Cash Revenue till 2021 (A)

($65000*4 Years)

 $260000 $260000 $260000
Depreciation till 2021 for each company (B) $70000 $70000 $70000
Retained Earnings (A-B) $190000 $190000 $190000

ekkarill92 answered 2 years ago
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