Question

The following events apply to Gulf Seafood for the Year 1 fiscal year: The company started when it acquired $60,000 cash by issuing common stock. Purchased a new cooktop that cost $40,000 cash. Earned $72,000 in cash revenue. Paid $25,000 cash for salaries expense. Adjusted the records to reflect the use of the cooktop. Purchased on January 1, Year 1, the cooktop has an expected useful life of four years and an estimated salvage value of $4,000. Use straight-line depreciation. The adjusting entry was made as of December 31, Year 1. Required Record the above transactions in a horizontal statements model. What amount of depreciation expense would Gulf Seafood report on the Year 1 income statement

Answer 1

The recording of the transactions in the books of Gulf Seafood for the Year 1 fiscal year in a horizontal financial statements model is as follows:

Transaction    Balance Sheet                  Income Statement     Statement of

                                                                                                       Cash Flows

      Assets = Liabilities + Equity             Revenue - Expense

                                                                     = Net Income

1. +$60,000 =           $0   + $60,000                                                       FA

2. +40,000 - 40,000                                                                                IA

3. +72,000 =            $0    +   72,000       +$72,000                                OA

4. -25,000 =            $0     -   25,000                          - 25,000               OA

5.   -9,000 =            $0     -     9,000                          -   9,000                N/A

 $98,000 =            $0       $98,000         $72,000 - $34,000 = $38,000

Where:

FA = Financing activity

IA = Investing activity

OA = Operating activity

N/A = Not applicable

2. The amount of depreciation expense that Gulf Seafood would report on its Year 1 Income Statement is $9,000.

Data Analysis:

Cash $60,000 Common Stock $60,000

Equipment $40,000 Cash $40,000

Cash $72,000 Sales Revenue $72,000

Salaries Expense $25,000 Cash $25,000

Depreciation Expense $9,000 Accumulated Depreciation $9,000 ($40,000 - $4,000)/4

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