The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 cash. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, cash flow from operating activities shown on the Year 2 statement of cash flows is Blank______.Multiple choice question.$10,000$0$24,000$20,000
Question
The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost 8,000 salvage value. Assuming BLC uses straight-line depreciation, cash flow from operating activities shown on the Year 2 statement of cash flows is Blank______.Multiple choice question.020,000
Solution
To answer this question, we first need to understand what straight-line depreciation is. Straight-line depreciation is a method of calculating depreciation and amortization, the process of expensing an asset over a longer period of time. It is calculated by subtracting the salvage value from the cost of the asset and then dividing by the useful life of the asset.
In this case, the cost of the limo is 8,000. The useful life is 4 years.
So, the annual depreciation expense would be: (8,000) / 4 = $10,000
This depreciation expense is a non-cash expense, meaning it does not directly affect the cash flow from operating activities. It is an expense that reduces the company's earnings before tax but does not involve an actual cash outflow.
Therefore, the depreciation expense of the limo does not affect the cash flow from operating activities shown on the Year 2 statement of cash flows.
So, the answer is $0.
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