Answer:
E. None of the above
Explanation:
The only two accounts that you must add to net income are the amortization and depreciation
In order to reconcile net income to cash from operations the Amortization and Depreciation must be added to Net Income.
Why? because These accounts: Amortization and Depreciation are not cash accounts. This means that the figures in amortization and Depreciation are not actual outflows of cash but just a bookkeeping figure.
If you need to indicate the missing ammount of each letter in the grahp then it will be like follows:
For the first case:
A = $9,600 + $5,000 + $8,000 = $22,600$22,600 + $1,000 – B = $17,000
B = $22,600 + $1,000 – $17,000 = $6,600$17,000 + C = $20,000
C = $20,000 – $17,000 = $3,000
D = $20,000 – $3,400 = $16,600
<span>E = ($24,500 – $2,500) – $16,600 = $5,400
</span><span>F = $5,400 – $2,500 = $2,900
</span>And now for the second case:
G + $8,000 + $4,000 = $16,000
G = $16,000 – $8,000 – $4,000 = $4,000$16,000 + H – $3,000 = $22,000
H = $22,000 + $3,000 – $16,000 = $9,000(I – $1,400) – K = $7,000(I – $1,400) – $22,800 = $7,000
<span>I = $1,400 + $22,800 + $7,000 = $31,200
</span>J = $22,000 + $3,300 = $25,300
K = $25,300 – $2,500 = $22,800$7,000 – L = $5,000
<span>L = $2,000</span>
Answer:
a.
Depreciation expense year 2 Straight line = $5875
b.
Depreciation expense year 2 Double declining = $6250
c.
Depreciation expense year 2 units of activity = $5264
Explanation:
a.
Straight line method is a depreciation method that charges a constant depreciation expense through out the useful life of the asset. Straight line depreciation per year is,
Straight line depreciation = (Cost - Salvage value) / Estimated useful life
Straight line depreciation = (25000 - 1500) / 4 = $5875 per year
Straight line rate = 100% / 4 = 25%
b.
Double declining balance is an accelerated method of depreciation that charges more depreciation in the initial years and less in later years. Double declining balance depreciation is calculated as follows,
Depreciation expense = 2 * Straight line rate * Book value at start of the period
Depreciation expense year 1 = 2 * 0.25 * 25000 = $12500
Book value at start of year 2 = 25000 - 12500 = $12500
Depreciation year 2 = 2 * 0.25 * 12500 = $6250
c.
The units of production method charges depreciation based on the activity for which asset is used as a proportion of the estimated useful life in terms of activity.
Depreciation expense year 2 = (28000 / 125000) * (25000 - 1500)
Depreciation expense year 2 = $5264
