Question

Required Information [The following information applies to the questions displayed below! The following events apply to Gulf Seafood for the Year 1 fiscal year 1. The company started when it acquired $33,000 cash by issuing common stock. 2. Purchased a new cooktop that cost $16.900 cash. 3. Earned $18.000 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. Year 1, the cooktop has an expected useful life of five years and an estimated salvage value of $2,600. Use straight-line depreciation. The adjusting entry was made as of December 31, Year 1. b. Prepare a balance sheet and a statement of cash flows for the Year 1 accounting period. (Amounts to be deducted should be Indicated by a minus sign.) GULF SEAFOOD Balance Sheet As of December 31, Year 1 Assets E pment Cooktop $ 10.000 Less Accumulated depreciation 2014040 Total Assets 540 Liabilities Stockholders equity Common stock 3 33.000

Answer 1

First we will calculate the depreciation on cooktop.

Under the straight line method, depreciation is calculated by the following formula:

Depreciation = Cost - Salvage value / Useful life

Cost = $16900, Salvage value = $2600, useful life = 5

Depreciation = ($16900 - $2600) / 5 = $2860

Under straight line method, depreciation remains the same for every year. So depreciation for Year 1 and after will be same i.e. $2860.

Next we will calculate the net income during year 1:

Net income = Revenues - Expenses or,

Net income = Revenue - Salaries - Depreciation

Putting the values in the above equation, we get,

Net income = $18000 - $11500 - $2860 = $3640

Now we will prepare the cash flow statement as below:

Cash flow statement for the year ended December 31, year 1.

Description	Amount	Amount
Operating activities:
Net income	3640
Adjustments to reconcile net income
Add: Depreciation	2860
Net cash from operating activities		6500
Investing activities:
Purchase of cooktop	-16900
Net cash from investing activities		-16900
Financing activities:
Proceeds from common stock issue	33000
Net cash from financing activities		33000
Net increase in cash		22600
Beginning cash balance		0
Ending cash balance		22600

Balance sheet as on December 31,Year 1

Description	Amount	Amount
Assets:
Cash		22600
Equipment- Cooktop	16900
Less: Accumulated Depreciation	-2860	14040
Total assets		36640
Liabilities & stockholder's equity:
Common stock	33000
Add: Net income	3640
Total liabilities & stockholder's equity		36640