Impact on Cash Flows - Schrade Company
Computing Depreciation and Book Value for Two Years Using Alternative Depreciation Methods and Interpreting the Impact on Cash Flows - Schrade Company bought a machine for $96,000 cash. The estimated useful life was four years, and the estimated residual value was $6,000. Assume that the estimated useful life in productive units is 120,000. Units actually produced were 43,000 in year 1 and 45,000 in year 2.
Required:
1. Determine the appropriate amounts to complete the following schedule. Show computations, and round to the nearest dollar.
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Depreciation Expense for
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Net Book Value at the End of
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Method of Depreciation
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Year 1
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Year 2
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Year 1
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Year 2
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Straight-line
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Units-of-production
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Double-declining-balance
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2. Which method would result in the lowest EPS for year 1? For year 2?
3. Which method would result in the highest amount of cash outflows in year 1? Why?
4. Indicate the effects of ( a ) acquiring the machine and ( b ) recording annual depreciation on the operating and investing activities sections of the statement of cash flows (indirect method) for year 1 (assume the straight-line method).