On January 1, Year 1, Webb Construction Company overhauled four cranes, resulting in a slight increase...

4.1 Ratings (797 Votes)

Depreciation under Straight line would be equal for all years

Depreciation under straight-line method=(Cost-Salvage value)/Useful life=(28420-0)/2=$ 14210

Additional depreciation expense:

Year 1

14210

Year 2

14210

Expense will be recognized in the year expense is incurred.In this case, only in year 1.

Maintenance expense:

Year 1

28420

Year 2

Depreciation will have no effect on cashflow from operating activities since depreciation is a non-cash expense

In year 1,

Maintenance expense will reduce the cashflow from operating activities by $ 28420

In year 2,

Maintenance expense will have no effect on cashflow from operating activities since maintenance expense for year 2 is 0.

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