Question

(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 $18,000 cash by issuing common stock. 2. Purchased a new cooktop that cost $13,600 cash. 3. Earned $23,000 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 four years and an estimated salvage value of $2,000. Use straight-line depreciation. The adjustment was made as of December 31, Year 1.

Answer 1

GULF SEAFOOD
Horizontal Statements Model
Event				Balance Sheet						Income Statement			Statement of Cash Flows
		Assets		=		Stockholder's Equity		Revenue	-	Expense	=	Net Income
	Cash	+	Equipment (BV)	=	Common Stock	+	Retained Earnings
1	$18000	+	$0	=	$18000	+	$0	$0	-	$0	=	$0	$18000
2	($13600)	+	$13600	=	$0	+	$0	$0	-	$0	=	$0	($13600)
3	$23000	+	$0	=	$0	+	$23000	$23000	-	$0	=	$23000	$23000
4	($11500)	+	0	=	$0	+	($11500)	$0	-	$11500	=	($11500)	($11500)
5	$0	+	($2900)	=	$0	+	($2900)	$0	-	$2900	=	($2900)	$0
Balance	$15900	+	$10700	=	$18000	+	$8600	$23000	-	$14400	=	$8600	$15900

b) Depreciation for the first year

Cost. of asset =$13600

Salvage value =$2000

Useful life = 4 years

Depreciation = ( 13600-2000) ÷ 4

= $ 2900

c) Accumulated depreciation

Accumulated depreciation on 2 year = 2900 × 2

= $ 5800

d) No

Depreciation is a non cash expense . So it will not affect the cash flow.

Note : Accumulated depreciation for first year is shown as a negative figure in equipment column in the table as column for it is not provided in the table.

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