Question

In: Accounting

For each Financial Transaction below, identify the effect on the Balance Sheet, Income Statement and Statement...

For each Financial Transaction below, identify the effect on the Balance Sheet, Income Statement and Statement of Cash Flows. If a transaction does not effect a statement(s), then answer “N/A.” (1/2 point for each of the three statements.) Identify if the transaction on the statement of cash flows is an Operating activity (OA), Investing activity (IA) or a Financing Activity (FA) 1. Calculate the Depreciation on a delivery truck that costs $225,000 with a salvage value of $10,000. Assume the truck will be depreciated over 10 years using straight-line depreciation. 2. Record the effect on the financial statements for the first year’s of depreciation expense for the truck. Assets = Liabilities + Stockholders' Equity Statement of Cash Flow - = + Common Stock + Retained Earnings REV - EXP - DIV = + + - - 3. Record the effect on the financial statements if the truck is sold for $20,000 10 years from now. Assets = Liabilities + Stockholders' Equity Statement of Cash Flow - = + Common Stock + Retained Earnings REV - EXP - DIV = + + - - 4. Record the effect on the financial statements if a $1,000,000 Bond Payable is redeemed at maturity for face value. Assets = Liabilities + Stockholders' Equity Statement of Cash Flow = + Common Stock + Retained Earnings REV - EXP - DIV = + + - - 5. Warranty expense of $10,000 is estimated for the most current sales period of the company. Assets = Liabilities + Stockholders' Equity Statement of Cash Flow = + Common Stock + Retained Earnings REV - EXP - DIV = + + - - 6. The company settles a warranty obligation of $500 in the current period. Assets = Liabilities + Stockholders' Equity Statement of Cash Flow = + Common Stock + Retained Earnings REV - EXP - DIV = + + - - 7. 500 shares of $1 par value stock was issued for $30/share. Assets = Liabilities + Stockholders' Equity Stmt of Cash Flows + + = + + + Common Stock + + Retained Earnings REV - EXP - DIV 8. 200 shares of the company’s own stock was repurchased by the company in the open market at a price of $25/share. Assets = Liabilities + Stockholders' Equity Stmt of Cash Flows + + = + + + Common Stock - + Retained Earnings REV - EXP - DIV 9. A 5% common stock dividend on 2,000 shares outstanding with a par value of $1 was declared. The current market value of the stock is $35/share. Assets = Liabilities + Stockholders' Equity Stmt of Cash Flows + + = + + + Common Stock + + Retained Earnings REV - EXP - DIV 10. Amortization Expense of $8,500 is recorded for an Intangible asset. Assets = Liabilities + Stockholders' Equity Statement of Cash Flow = + Common Stock + Retained Earnings REV - EXP - DIV = + + - -

For each Financial Transaction below, identify the effect on the Balance Sheet, Income Statement and Statement of Cash Flows. If a transaction does not effect a statement(s), then answer “N/A.” (1/2 point for each of the three statements.)

Identify if the transaction on the statement of cash flows is an Operating activity (OA), Investing activity (IA) or a Financing Activity (FA)

  1. Calculate the Depreciation on a delivery truck that costs $225,000 with a salvage value of $10,000. Assume the truck will be depreciated over 10 years using straight-line depreciation.

  1. Record the effect on the financial statements for the first year’s of depreciation expense for the truck.

Assets

=

Liabilities

+

Stockholders' Equity

Statement of Cash Flow

-

=

+

Common Stock

+

Retained Earnings

REV

-

EXP

-

DIV

=

+

+

-

-

  1. Record the effect on the financial statements if the truck is sold for $20,000 10 years from now.   

Assets

=

Liabilities

+

Stockholders' Equity

Statement of Cash Flow

-

=

+

Common Stock

+

Retained Earnings

REV

-

EXP

-

DIV

=

+

+

-

-

Solutions

Expert Solution

1) Depreciation per year under Straight Line = (Cost - Residual Value)/Useful Life

= ($225,000 - $10,000)10 years = $21,500 per year

2) Effect of Depreciation Expense on the financial statements (Amounts in $)

Assets

=

Liabilities

+

Stockholders' Equity

Statement of Cash Flow

Equipment

-

Accumulated Depreciation

=

+

Common Stock

+

Retained Earnings

REV

-

EXP

-

DIV

NA - 21,500 NA NA

=

+

NA

+

NA

-

21,500

-

NA Operating Activity (OA)

Depreciation expense will be debited which will decrease the retained earnings and accumulated depreciation account will be credited which decrease the net book value of Truck.

3) Depreciation charged up to 10 yrs = $21,500*10 yrs = $215,000

Book value at the end of 10 yrs = $225,000-$215,000 = $10,000

Sale Value = $20,000

Gain on sale of truck = $20,000 - $10,000

Effect of sale of truck on the financial statements (Amounts in $)

Assets

=

Liabilities

+

Stockholders' Equity

Statement of Cash Flow

Cash + Equipment

-

Accumulated Depreciation

=

+

Common Stock

+

Retained Earnings

REV

-

EXP

-

DIV

20,000 + -225,000 - -215,000

=

+

+

10,000

-

-

Investing Activity (IA)

4) Effect of redemption of bonds on the financial statements (Amounts in $)

Assets

=

Liabilities

+

Stockholders' Equity

Statement of Cash Flow

Cash +

=

Bonds Payable

+

Common Stock

+

Retained Earnings

REV

-

EXP

-

DIV

-1,000,000 -1,000,000

+

+

Financing Activity (FA)

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