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Three different companies each purchased trucks on January 1, 2018, for $82,000. Each truck was expected...

Three different companies each purchased trucks on January 1, 2018, for $82,000. 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 79,000 miles in 2018, 56,000 miles in 2019, 51,000 miles in 2020, and 71,000 miles in 2021. Each of the three companies earned $71,000 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?

Retained Earnings

Company A

Company B

Company C

Solutions

Expert Solution

Solution - Calculation of Retained Earnings on december 31, 2021
Cost of Each Truck = $82000
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 = ($82000-$6000)/4 = $19000
Depreciation for 4 years = $19000*4 = $76000
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 $82,000 $41,000
Year 2019 $41,000 $20,500
Year 2020 $20,500 $10,250
Year 2021($76000-$41000-$20500-$10250) $10,250 $4,250
Total $76,000
Company C - Units of Production Method
Depreciable amount = ($82000 - $6000) = $76000
Depreciation = Depreciable amount*(Miles used in current year/Total Miles)
Particulars Amount
Depreciation in 2018 ($76000*79000/250000) $24,016
Depreciation in 2019 ($76000*56000/250000) $17,024
Depreciation in 2020 ($76000*51000/250000) $15,504
Depreciation in 2021 ($76000 - $24016 - $17024 - $15504) $19,456
Total Depreciation charged $76,000
Calculation of retained earnings
Particulars Company A Company B Company C
Cash Revenue till 2021 (A) $284,000 $284,000 $284,000
Depreciation till 2021 for each company (B) $70,000 $70,000 $70,000
Retained Earnings (A-B) $214,000 $214,000 $214,000

ekkarill92 answered 2 years ago
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