Purchase and use of tangible asset: three accounting cycles, straight-line depreciationThe...

Purchase and use of tangible asset: three accounting cycles, straight-line depreciation

The following transactions relate to Jim’s Towing Service. Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year.

2011

1. Acquired $40,000 cash from the issue of common stock.

2. Purchased a used wrecker for $26,000. It has an estimated useful life of three years and a $2,000 salvage value.

3. Paid sales tax on the wrecker of $1,800.

4. Collected $ 17,600 in towing fees.

5. Paid $3,000 for gasoline and oil.

6. Recorded straight-line depreciation on the wrecker for 2011.

7. Closed the revenue and expense accounts to Retained Earnings at the end of 2011.

2012

1. Paid for a tune-up for the wrecker’s engine, $400.

2. Bought four new tires, $600.

3. Collected $ 18,000 in towing fees.

4. Paid $4,200 for gasoline and oil.

5. Recorded straight-line depreciation for 2012.

6. Closed the revenue and expense accounts to Retained Earnings at the end of 2012.

2013

1. Paid to overhaul the wrecker’s engine, $1,400, which extended the life of the wrecker to a total of four years.

2. Paid for gasoline and oil, $3,600.

3. Collected $30,000 in towing fees.

4. Recorded straight-line 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-accounts.

c. Use a vertical model to present financial statements for 2011. 2012. and 2013.