Question

The following events apply to Tracey's Restaurant for the Year 1 fiscal year: 1. Started the company when it acquired $37,000 cash from the issue of common stock 2. Purchased a new cooktop that cost $36.000 cash. 3. Earned $50,000 in cash revenue. 4. Paid $34,000 cash for salaries expense. 5. Paid $7,300 cash for operating expenses. 6. Adjusted the records to reflect the use of the cooktop. The cooktop, purchased on January 1, Year 1, has an expected useful life of five years and an estimated salvage value of $3,500. Use straight-line depreciation. The adjusting entry was made as of December 31, Year 1 Required a. Record the events in general ledger accounts under an accounting equation. (Negative amounts should be indicated by a minus sign.) TRACEY'S RESTAURANT Accounting Equation for Year 1 Assets - Cash Cook Top 37,000 000 36.000 Stockholders' Equity Retained Event Accum. Dopr. Com. Stock Earnings 1. Issue stk $ $ 37,000 50,000 2. Pur, cooktop 3. Rev. 4. Paid sal exp 5. Paid op. exp. 6. Depr. exp. Totals 50,000 (34,000) (7.300) (34.000) (7.300) $ 9,700 $ 36,000 $ 0 = $ 37,000 $ 15.200

Answer 1

a) Accounting Equation for year 1:- Assets Event Cash Cooktop Accumulated Depreciation Stockholders Equity Common Retained Stock earnings 37,000 + 36,000 + 37,000 (36,000) 50,000 (34,000) (7,300) + + + 50,000 (34,000) (7,300) (6,500) 2,200 + (6,500) = (6,500) = 9,700 36,000 37,000 + Annual depreciation expense of Cooktop = (Cost-Salvage value)/Life = (36000-3500)/5 = $ 6,500/. b) Depreciation expense for year 2 will be same as year 1 = $ 6,500/- c) Accumulated depreciation reported on balance sheet of year 2 end is - (6500+6500) - $ 13,000/. d) Yes, Depreciation expense being a non cash expenditure has to be added back to net income for determination of Cashflows from Operating activities.