Purchase and use of tangible asset: three accounting cycles, double-declining-balance depreciation
LO 2,3,6,7
The following transactions pertain to Optimal Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year.
2011
1. Acquired $60,000 cash from the issue of common stock.
2. Purchased a computer system for $25,000. It has an estimated useful life of five years and a $3,000 salvage value.
3. Paid $1,500 sales tax on the computer system.
4. Collected $35,000 in data entry fees from clients.
5. Paid $1,200 in fees to service the computers.
6. Recorded double-declining-balance depreciation on the computer system for 2011.
7. Closed the revenue and expense accounts to Retained Earnings at the end of 2011.
2012
1. Paid $800 for repairs to the computer system.
2. Bought a case of toner cartridges for the printers that are part of the computer system, $1,200.
3. Collected $38,000 in data entry fees from clients.
4. Paid $900 in fees to service the computers.
5. Recorded double-declining-balance depreciation for 2012.
6. Closed the revenue and expense accounts to Retained Earnings at the end of 2012.
2013
1. Paid $3,000 to upgrade the computer system, which extended the total life of the system to six years.
2. Paid $900 in fees to service the computers.
3. Collected $35,000 in data entry fees from clients.
4. Recorded double-declining-balance depreciation for 2013.
5. Closed the revenue and expense accounts at the end of 2013.
Required
a. Use a horizontal statements model like the following one to show the effect of these transactions on the elements of financial statements. Use + for increase − for decrease, and NA for not affected. The first event is recorded as an example.
b. For each year, record the transactions in general journal form and post them to T-aceounts.
c. Use a vertical model to present financial statements for 2011, 2012, and 2013.
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