Survey Of Accounting
Survey Of Accounting
4th Edition
ISBN: 9780077862374
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 24P

a.

To determine

Identify the company which will report the highest amount of net income for 2014.

a.

Expert Solution
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Explanation of Solution

Net Income

Net income is the sum total of all the revenues generated in a particular accounting period after deducting cost of goods sold and expenses and losses, such as rent expense, depreciation of that particular accounting period.

Identify the company which will report the highest amount of net income for 2014:

Net Income for 2014
 Company A (in $)Company B (in $)Company C (in $)
Revenue30,00030,00030,000
Less: Depreciation expense12,00025,60014,500
Net Income$18,000$4,400$15,500

Table (1)

Working Note 1: Prepare depreciation schedule under straight-line method for Company A.

DateDepreciable Cost (in $)Depreciation RateDepreciation expense (in $)
(A)(B)((C)=(A)×(B))
201460,0001/512,000
201560,0001/512,000
201660,0001/512,000
201760,0001/512,000
201860,0001/512,000

Table (2)

Calculate the depreciable cost:

Depreciable cost=Cost of the assetResidual value=$64,000$4,000=$60,000

Working Note 2: Prepare depreciation schedule under double-declining-balance (DDB) method for Company B.

DateDouble-Declining-Balance Depreciation  RateBook Value (Refer note) (in $)Depreciation expense (in $)
 (A)(B)((C)=(A)×(B))
20140.4064,00025,600
20150.4038,40015,360
20160.4023,0409,216
20170.4013,8245,530
20180.408,2944,294

Table (3)

Note: Book value:

The amount of acquisition cost of less accumulated depreciation as on a particular date is referred to as book value.

Formula for book value:

Book value = {Acquisition cost–Accumulated depreciation}

Accumulated depreciation:

The total amount of depreciation expense deducted, from the time asset acquired till date, as reported in the account as on a particular date, is referred to as accumulated depreciation.

Formula for accumulated depreciation:

Accumulated depreciation = {Depreciation expense in the previous years+Depreciation in current year}

Determine the depreciation rate applied each year:

Useful life = 5 years

Depreciation rate = 100%4 years × 2= 40%or .40

Compute depreciation expense on 2018:

Depreciation on 2018=(Asset cost–Residual valueAccumulated depreciation in 2018)=$64,000–$4,000–($25,600+$15,360+$9,216+$5,530)=$60,000$55,706=$4,294

Working note 3: Prepare depreciation schedule under units-of-production method for Company C.

DateDepreciation per unitNumber of hoursDepreciation expense (in $)
(A)(B)((C)=(A)×(B))
2014$0.3050,00015,000
2015$0.3055,00016,500
2016$0.3040,00012,000
2017$0.3044,00013,200
2018$0.3031,0003,300

Table (4)

Compute depreciation per unit:

Depreciation per unit = Asset cost – Residual valueEstimated units of total production=$64,000–$4,000200,000hours=$60,000200,000miles= $0.30 per hour

Compute depreciation expense on 2018:

Depreciation on 2018=(Asset cost–Residual valueAccumulated depreciation in 2018)=$64,000–$4,000–($15,000+$16,500+$12,000+$13,200)=$60,000$56,700=$3,300

Conclusion

Hence, the company which will report the highest amount of net income for 2014 is Company A.

b.

To determine

Identify the company which will report the lowest amount of net income for 2016.

b.

Expert Solution
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Explanation of Solution

Net Income

Net income is the sum total of all the revenues generated in a particular accounting period after deducting cost of goods sold and expenses and losses, such as rent expense, depreciation of that particular accounting period.

Identify the company which will report the lowest amount of net income for 2016:

Net Income for 2016
 Company A (in $)Company B (in $)Company C (in $)
Revenue30,00030,00030,000
Less: Depreciation expense12,0009,21612,000
Net Income$18,000$20,784$18,000

Table (5)

Working Note 4: Prepare depreciation schedule under straight-line method for Company A.

DateDepreciable Cost (in $)Depreciation RateDepreciation expense (in $)
(A)(B)((C)=(A)×(B))
201460,0001/512,000
201560,0001/512,000
201660,0001/512,000
201760,0001/512,000
201860,0001/512,000

Table (6)

Calculate the depreciable cost:

Depreciable cost=Cost of the assetResidual value=$64,000$4,000=$60,000

Working Note 5: Prepare depreciation schedule under double-declining-balance (DDB) method for Company B.

DateDouble-Declining-Balance Depreciation RateBook Value (Refer note) (in $)Depreciation expense (in $)
(A)(B)((C)=(A)×(B))
20140.4064,00025,600
20150.4038,40015,360
20160.4023,0409,216
20170.4013,8245,530
20180.408,2944,294

Table (7)

Note:

Book value:

The amount of acquisition cost of less accumulated depreciation as on a particular date is referred to as book value.

Formula for book value:

Book value = {Acquisition cost–Accumulated depreciation}

Accumulated depreciation:

The total amount of depreciation expense deducted, from the time asset acquired till date, as reported in the account as on a particular date, is referred to as accumulated depreciation.

Formula for accumulated depreciation:

Accumulated depreciation = {Depreciation expense in the previous years+Depreciation in current year}

Determine the depreciation rate applied each year.

Useful life = 5 years

Depreciation rate = 100%4 years × 2= 40%or .40

Compute depreciation expense on 2018:

Depreciation on 2018=(Asset cost–Residual valueAccumulated depreciation in 2018)=$64,000–$4,000–($25,600+$15,360+$9,216+$5,530)=$60,000$55,706=$4,294

Working Note 6: Prepare depreciation schedule under units-of-production method for Company C.

DateDepreciation per unitNumber of hoursDepreciation expense (in $)
(A)(B)((C)=(A)×(B))
2014$0.3050,00015,000
2015$0.3055,00016,500
2016$0.3040,00012,000
2017$0.3044,00013,200
2018$0.3031,0003,300

Table (8)

Compute depreciation per unit.

Depreciation per unit = Asset cost – Residual valueEstimated units of total production=$64,000–$4,000200,000hours=$60,000200,000miles= $0.30 per hour

Compute depreciation expense on 2018:

Depreciation on 2018=(Asset cost–Residual valueAccumulated depreciation in 2018)=$64,000–$4,000–($15,000+$16,500+$12,000+$13,200)=$60,000$56,700=$3,300

Conclusion

Hence, the company which will report the lowest amount of net income for 2016 is Company A and Company C.

c.

To determine

Identify the company which will report the highest book value on the December 31, 2016, balance sheet.

c.

Expert Solution
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Explanation of Solution

Book value:

The amount of acquisition cost of less accumulated depreciation as on a particular date is referred to as book value.

Formula for book value:

Book value = {Acquisition cost–Accumulated depreciation}

Identify the company which will report the highest book value on the December 31, 2016, balance sheet:

Book value on December 31, 2016
 Company A (in $)Company B (in $)Company C (in $)
Cost64,00064,00064,000
Less: Accumulated depreciation34,80050,17642,050
Book value$29,200$13,824$21,950

Table (9)

Working Note 7: Prepare depreciation schedule under straight-line method for Company A.

DateDepreciable Cost (in $)Depreciation RateDepreciation expense (in $)Accumulated depreciation (in $)
(A)(B)((C)=(A)×(B))
201460,0001/512,00012,000
201560,0001/512,00024,000
201660,0001/512,00036,000

Table (10)

Calculate the depreciable cost:

Depreciable cost=Cost of the assetResidual value=$64,000$4,000=$60,000

Working Note 8: Prepare depreciation schedule under double-declining-balance (DDB) method for Company B.

DateDouble-Declining-Balance Depreciation RateBook Value (Refer note) (in $)Depreciation expense (in $)((C)=(A)×(B))Accumulated depreciation (in $)
 (A) (B)  
20140.4064,00025,60025,600
20150.4038,40015,36040,960
20160.4023,0409,21650,176

Table (11)

Note:

Book value:

The amount of acquisition cost of less accumulated depreciation as on a particular date is referred to as book value.

Formula for book value:

Book value = {Acquisition cost–Accumulated depreciation}

Accumulated depreciation:

The total amount of depreciation expense deducted, from the time asset acquired till date, as reported in the account as on a particular date, is referred to as accumulated depreciation.

Formula for accumulated depreciation:

Accumulated depreciation = {Depreciation expense in the previous years+Depreciation in current year}

Determine the depreciation rate applied each year.

Useful life = 5 years

Depreciation rate = 100%4 years × 2= 40%or .40

Working Note 9: Prepare depreciation schedule under units-of-production method for Company C.

DateDepreciation per unit (A)Number of hours (B)Depreciation expense (in $)((C)=(A)×(B))Accumulated depreciation (in $)
2014$0.3050,00015,00015,000
2015$0.3055,00016,50031,500
2016$0.3040,00012,00043,500

Table (12)

Compute depreciation per unit:

Depreciation per unit = Asset cost – Residual valueEstimated units of total production=$64,000–$4,000200,000hours=$60,000200,000miles= $0.30 per hour

Conclusion

Hence, the company which will report the highest book value on the December 31, 2016, balance sheet is Company A.

d.

To determine

Identify the company which will report the highest amount of retained earnings on the December 31, 2017, balance sheet.

d.

Expert Solution
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Explanation of Solution

Retained earnings:

The retained earnings statement is that financial statement which shows the amount of net income which is actually retained by the Company on a particular date. These earnings can be utilized by the Company for the reinvestment and to pay its debts.

Survey Of Accounting, Chapter 6, Problem 24P

Table (13)

Hence, the company which will report the highest amount of retained earnings on the December 31, 2017, balance sheet is Company A. However, the retained earnings for all the companies will be the same at the end of the asset’s five-year life, as the total depreciation over the five year period is the same for all the three companies.

e.

To determine

Identify the company which will report the lowest amount of cash flow from operating activities on the 2016 statement of cash flows.

e.

Expert Solution
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Explanation of Solution

Statement of cash flows:

This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.

Cash flows from operating activities:

These refer to the cash received or cash paid in day-to-day operating activities of a company.  In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

Depreciation expense is not a cash outflow item. If the income tax is not considered, all the three companies will report the same amount of cash flow from operating activities on the 2016 statement of cash flows.

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Chapter 6 Solutions

Survey Of Accounting

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