Three different companies each purchased a machine on January 1, Year 1, for $64,000. Each machine was expected to last five years or 43,800 hours. Salvage value was estimated to be $6,000. All three machines were operated for 10,000 hours in Year 1, 12,000 hours in Year 2, 8,000 hours in Year 3, 9,000 hours in Year 4, and 6,000 hours in Year 5. Each of the three companies earned $30,000 of cash revenue during each of the five years. Company A uses straight-line depreciation, company B uses double-declining-balance depreciation, and company C uses units-of-production depreciation.
Required
Answer each of the following questions. Ignore the effects of income taxes.
a. Which company will report the highest amount of net income for Year 1?
b. Which company will report the lowest amount of net income for Year 3?
c. Which company will report the highest book value on the December 31, Year 3, balance sheet?
d. Which company will report the highest amount of retained earnings on the December 31, Year 4, balance sheet?
e. Which company will report the lowest amount of cash flow from operating activities on the Year 3 statement of cash flows?
