Question

The following events apply to Gulf Seafood for the 2018 fiscal year:

1. The company started when it acquired $17,000 cash by issuing common stock.

2. Purchased a new cooktop that cost $12,700 cash.

3. Earned $22,900 in cash revenue.

4. Paid $11,500 cash for salaries expense.

5. Adjusted the records to reflect the use of the cooktop. Purchased on January 1, 2018, the cooktop has an expected useful life of four years and an estimated salvage value of $2,000. Use straight-line depreciation. The adjusting entry was made as of December 31, 2018.

Required

1. Record the above transactions in a horizontal statements model like the following one. (In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA) and net change in cash (NC). If the element is not affected by the event, leave the cell blank. Enter any decreases to account balances and cash outflows with a minus sign.)

Answer 1

The Basic Principle of financial accounting is the Accounting Equation.
The Accounting Equation is Assets = Liabilities + Equity
Assets are resources controlled by the firm because of past transactions that are expected provide future benefits.
Liabilities are the obligations as a result of past events that are expected require an outflow of economic resources
Equity is the residual interest in the assets of the firm after deducting the liabilities. Equity consists of contributed capital and retained earnings
Assets = Liabilities + Contributed Capital + ending Retained Earnings
Assets = Liabilities + Beginning Common Stock + Issue of Common stock + Beginning Retained Earnings + Net Income - Dividends

Shareholders' Equity Liability Assets Income Statement Particulars Cash Flow Statement +Cook Top Accu DepLiability Retained Earnings Revenue Expenses Net Income Cash Equity $17,000 $17,000 ($12,700) $22,900 ($11,500) $17,000 ($12,700) $22,900 ($11,500) 1 FA $12,700 2 IA + $22,900 $22,900 $22,900 ($11,500) ($2,675) 3 OA + $11,500 $2,675 ($11,500) ($2,675) 4 OA + $2,675 5 NA + Cooktop $12,700 $2,000 Cost Salvage Value Useful Life 4 Straight Line Depreciation (Cost Salvage Value)/Useful life Straight Line Depreciation ($12700-$2000)/4 Straight Line Depreciation $2,675