Question

Three different companies each purchased trucks on January 1, 2018, for $62,000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $2,000. All three trucks were driven 80,000 miles in 2018, 55,000 miles in 2019, 51,000 miles in 2020, and 70,000 miles in 2021. Each of the three companies earned $53,000 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.
Calculate the net income for 2021? (Round "Per Unit Cost" to 3 decimal places.)

Answer 1

Answer:

Net Income Calculation for 2021

                                                Company A       Company B       Company C

Revenue                                    $53,000             $53,000             $53,000

Less Depreciation Expense     ($15,000)             ($0.00)              ($16,800)

Net Income / (Loss)                   $38,000             $53,000             $36,200

Explanation:

Company A

Depreciation Expense (Straight line) : (Cost - Salvage Value) / Number of Useful Life

2021 = ($62,000-$2,000) / 4

        = $15,000

Company B

Depreciation Expense (Double Declining Balance) : 2 × SLDP × BVSLD

SLDP = 100/ 4

         = 25%

2018 = 2 × 25% × $62,000

        = $ 31,000

2019 = 2 × 25% × ($62,000 - $ 31,000)

        = $ 15,500

2020 = 2 × 25% × ($62,000 - $ 31,000 - $ 15,500 )

        = $ 7,750

2021 = 2 × 25% × ($62,000 - $ 31,000 - $ 15,500 - $ 7,750 )

        = 0

In 2021 depreciation will only be allowed where:

Book Value = Salvage Value

Test to see if Book Value has fallen below Salvage Value :

Cost                                                 $62,000

Less Accumulated depreciation    $54,250

Book Value                                      $ 7,750

Company C

Depreciation Expense (units-of-production) : (Cost - Salvage Value) × Period`s Production / Total Expected Production

2021 = ($62,000-$2,000) × 70,000/  250,000

        = $16,800

Net Income Calculation for 2021

                                                Company A       Company B       Company C

Revenue                                    $53,000             $53,000             $53,000

Less Depreciation Expense     ($15,000)             ($0.00)              ($16,800)

Net Income / (Loss)                   $38,000             $53,000             $36,200