Answer:
a) 2021: Company A Company B Company C
Sales Revenue $65,000 $65,000 $65,000
Depreciation 17,500 3,500 19,880
Net Income $47,500 61,500 $45,120
b) Company C.
c) Book Value on December 31, 2020 Balance Sheet:
Company A Company B Company C
Truck $76,000 $76,000 $76,000
Accumulated Depreciation $52,500 $66,500 $50,960
Book value $23,500 $9,500 $25,040
d) Company reporting the highest book value on December 31, 2020:
Company C.
e) Retained Earnings:
Company A Company B Company C
2018:
Net Income $47,500 27,000 $42,320
2019:
Net Income $47,500 46,000 $49,600
2020:
Net Income $47,500 55,500 $52,120
2021:
Net Income $47,500 61,500 $45,120
Retained earnings $190,000 $190,000 $189,160
f) Companies A and B will report the highest amount of retained earnings because C's units of production did not tally to 250,000.
Explanation:
Cost of Truck = $76,000
Lifespan = 4 years or 250,000 miles
Salvage value = $6,000
Depreciable amount = $70,000 ($76,000 - $6,000)
Straight-line rate = $17,500 ($70,000/4) or 25% (100/4) per year
Double-declining balance rate = 50% (100/4 * 2) on the book balance
Units of production rate = $0.28 ($70,000/250,000) per unit
Income Statement for the three companies:
Company A Company B Company C
2018:
Sales Revenue $65,000 $65,000 $65,000
Depreciation 17,500 38,000 22,680
Net Income $47,500 27,000 $42,320
2019:
Sales Revenue $65,000 $65,000 $65,000
Depreciation 17,500 19,000 15,400
Net Income $47,500 46,000 $49,600
2020:
Sales Revenue $65,000 $65,000 $65,000
Depreciation 17,500 9,500 12,880
Net Income $47,500 55,500 $52,120
2021:
Sales Revenue $65,000 $65,000 $65,000
Depreciation 17,500 3,500 19,880
Net Income $47,500 61,500 $45,120
Accumulated Depreciation:
Company A Company B Company C
Depreciation 2018 17,500 38,000 22,680
Depreciation 2019 17,500 19,000 15,400
Accumulated Depreciation $35,000 $57,000 $38,080
Depreciation 2020 17,500 9,500 12,880
Accumulated Depreciation $52,500 $66,500 $50,960
Depreciation 2021 17,500 3,500 19,880
Accumulated Depreciation $70,000 $70,000 $70,840
