Question

The following transactions relate to Academy Towing Service. Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year. Assume all transactions were in cash.
 

Year 1

1. Acquired $77,000 cash from the issue of common stock.

2. Purchased a used wrecker for $39,000. It has an estimated useful life of three years and a $5,000 salvage value.

3. Paid sales tax on the wrecker of $5,000.

4. Collected $63,100 in towing fees.

5. Paid $12,700 for gasoline and oil.

6. Recorded straight-line depreciation on the wrecker for Year 1.

7. Closed the revenue and expense accounts to Retained Earnings at the end of Year 1.

Year 2

1. Paid for a tune-up for the wrecker’s engine, $1,600.

2. Bought four new tires, $1,950.

3. Collected $69,000 in towing fees.

4. Paid $18,700 for gasoline and oil.

5. Recorded straight-line depreciation for Year 2.

6. Closed the revenue and expense accounts to Retained Earnings at the end of Year 2.

Year 3

1. Paid to overhaul the wrecker’s engine, $5,500, which extended the life of the wrecker to a total of four years. The salvage value did not change.

2. Paid for gasoline and oil, $19,800.

3. Collected $72,000 in towing fees.

4. Recorded straight-line depreciation for Year 3.

5. Closed the revenue and expense accounts at the end of Year 3.

 

Required

1. Use a horizontal statements model to show the effect of these transactions on the elements of financial statements. Use + for increase, − for decrease, and leave blank for not affected.  

2. Prepare an income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for Year 1, Year 2, and Year 3.