Question

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

1. The company started when it acquired $20,000 cash by issuing common stock.

2. Purchased a new cooktop that cost $13,800 cash.

3. Earned $20,300 in cash revenue.

4. Paid $12,500 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 $2,800. Use straight-line depreciation. The adjusting entry was made as of December 31, 2018.

3. What amount of accumulated depreciation would Gulf Seafood report on the December 31, 2019, balance sheet?

	Accumulated depreciation

4. Would the cash flow from operating activities be affected by depreciation in 2018?

Answer 1

Answer

• Asset cost = $ 13,800 purchased (in transaction #2)
• Depreciation expense = (Cost – Salvage value) / Life
  = ($13800 – 2800) / 4 years
  = 11000 / 4
  = $ 2,750
• Requirement [c]
  Accumulated Depreciation on 31 Dec 2019 = 2 years depreciation
  = $ 2750 x 2 years
  =$ 5,500 Answer
• Requirement [d]
  Cash Flow from Operating activity = $ 20300 Cash received for revenue - $ 12500 Cash paid for salaries
  = $ 7,800 Answer