Purchase and use of tangible asset: three accounting cycles, double-declining-balance depr...

Purchase and use of tangible asset: three accounting cycles, double-declining-balance depreciation

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.

2012

1.Acquired $60,000 cash from the issue of common stock.

2.Purchased a computer system for $25,000 cash. 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 2012.

7.Closed the revenue and expense accounts to Retained Earnings at the end of 2013.

2013

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 2013.

6.Closed the revenue and expense accounts to Retained Earnings at the end of 2013.

2014

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 2014.

5.Closed the revenue and expense accounts at the end of 2014.

Required

a. Record the above transactions in a horizontal statements model like the following one.

b. Use a vertical model to present financial statements for 2012, 2013, and 2014.