Effect of depreciation on the accounting equation and financial statements
The following events apply to Jim’s Deli for the 2011 fiscal year:
1. The company started when it acquired $30,000 cash by issuing common stock.
2. Purchased a new stove that cost $22,000 cash.
3. Earned $21,000 in cash revenue.
4. Paid $4,000 cash for salaries expense.
5. Adjusted the records to reflect the use of the stove. Purchased on January 1, 2011, the stove has an expected useful life of four years and an estimated salvage value of $1,000. Use straight line depreciation. The adjusting entry was made as of December 31, 2011.
Required
a. Record the events in general journal format and post to T-accounts.
b. Prepare a balance sheet and a statement of cash flows for the 2011 accounting period.
c. What is the net income for 2011?
d. What amount of depreciation expense would Jim’s report on the 2012 income statement?
e. What amount of accumulated depreciation would Jim’s report on the December 31, 2012, balance sheet?
f. Would the cash flow from operating activities be affected by depreciation in 2012?
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