Question

[The following information applies to the questions displayed below.]

Three different companies each purchased trucks on January 1, Year 1, for $50,000. Each truck was expected to last four years or 200,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 66,000 miles in Year 1, 42,000 miles in Year 2, 40,000 miles in Year 3, and 60,000 miles in Year 4. Each of the three companies earned $40,000 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.

b-1. Calculate the net income for Year 4.
b-2. Which company will report the lowest amount of net income for Year 4?

Which company will report the lowest amount of net income for year 4?

Answer 1

1		Income Statement	Balance Sheet
	Year	Depreciation expense	Cost	Accumulated Depreciation	Book Value
	At Acqisition				50000
	1	11250	50000	11250	38750
	2	11250	50000	22500	27500
	3	11250	50000	33750	16250
	4	11250	50000	45000	5000
1B		Income Statement	Balance Sheet
	Year	Depreciation expense	Cost	Accumulated Depreciation	Book Value
	At Acqisition				50000
	1	14279	50000	14279	35721
	2	9087	50000	23365	26635
	3	8654	50000	32019	17981
	4	12981	50000	45000	5000
1C		Income Statement	Balance Sheet
	Year	Depreciation expense	Cost	Accumulated Depreciation	Book Value
	At Acqisition				50000
	1	25000	50000	25000	25000
	2	12500	50000	37500	12500
	3	6250	50000	43750	6250
	4	1250	50000	45000	5000
	Net Income	SLM	Units of Production	DDm
B1	Year 4	28750	27019	38750
b2	Units of Production method