Question

Bobby's sandwiches started business by acquiring $24,700 cash from the issue of common stock on January 1, Year 1. The cash acquired was immediately used to purchase equipment for $24,700 that had a $3,900 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume that all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $4,480 cash. Bobby uses straight-line depreciation.

	Year 1			Year 2			Year 3			Year 4			Year 5
Revenue	$	7,960		$	8,460		$	8,660		$	7,460		$	0

Required
Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years. Present the statements in the form of a vertical statements model.

Answer 1

Bobby

Income Statement

	$	$	$	$	$
Year	1	2	3	4	5
Revenue	7,960	8,460	8,660	7,460	0
Less: Depreciation expense	(5,200)	(5,200)	(5,200)	(5,200)
Gain (Loss)					580
Net Income	2,760	3,260	3,460	2,260	580

Computation of Depreciation per annum

Original cost of Equipment	$24,700
salvage value	$3,900
Depreciable value= original cost- salvage value $(24,700-3,900)	$20,800
Depreciation per annum= Depreciable value/useful life $(20,800/4)	$5,200

Loss/Gain on sale of equipment

Book value of equipment at the beginning of 5 th year	$3,900
Less : Sale proceed of equipment	$4,480
Gain on sale of equipment	$580

Satement of Changes in Stockholders Equity

	$	$	$	$	$
Year	1	2	3	4	5
Balance on Jan	-	27,460	30,720	34,180	36,440
Issue of Common stock	24,700	-	-	-	-
Net Income	2,760	3,260	3,460	2,260	580
Total stock holders Equity	27,460	30,720	34,180	36,440	37,020

Balance sheets

	$	$	$	$	$
Year	1	2	3	4	5
Asset	24,700	24,700	24,700	24,700	-
Accumulated Depreciation	(5,200)	(10,400)	(15,600)	(20,800)	-
Net Asset	19,500	14,300	9,100	3,900	-
Cash	7,960	16,420	25,080	32,540	37,020
Total Asset	27,460	30,720	34,180	36,440	37,020
Total stock holders Equity	27,460	30,720	34,180	36,440	37,020

Statement of Cash Flows

	$	$	$	$	$
Year	1	2	3	4	5
Net Income	2,760	3,260	3,460	2,260
add:depreciation	5,200	5,200	5,200	5,200
Net Cash flow from operating activities	7,960	8,460	8,660	7,460
Purchase of Equipment	(24,700)
Sale of equipment					4,480
Net Cashflow from investing activities	(24,700)	-	-	-	4,480
Issue of common stock	24,700
Net cash flow from financing activities	24,700	-	-	-	-
Net Change in cash	7,960	8,460	8,660	7,460	4,480
Beginning Cash Balance	-	7,960	16,420	25,080	32,540
Ending Cash Balance	7,960	16,420	25,080	32,540	37,020