Effect of depreciation on the accounting equation and financial statements
The following events apply to The Pizza Factory for the 2011 fiscal year:
1. The company started when it acquired $18,000 cash from the issue of common stock.
2. Purchased a new pizza oven that cost $ 15,000 cash.
3. Earned $26,000 in cash revenue.
4. Paid $13,000 cash for salaries expense.
5. Paid $6,000 cash for operating expenses.
6. Adjusted the records to reflect the use of the pizza oven. The oven, purchased on January 1, 2011 has an expected useful life of five years and an estimated salvage value of $3,000. 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. What amount of depreciation expense would The Pizza Factory report on the 2012 income statement?
c. What amount of accumulated depreciation would The Pizza Factory report on the December 31, 2011, balance sheet?
d. Would the cash flow from operating activities be affected by depreciation in 2012?
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