Question

Golden Manufacturing Company started operations by acquiring $150,000 cash from the issue of common stock. On January 1, Year 1, the company purchased equipment that cost $120,000 cash, had an expected useful life of five years, and had an estimated salvage value of $4,000. Golden Manufacturing earned $72,000 and $83,000 of cash revenue during Year 1 and Year 2, respectively. Golden Manufacturing uses double-declining-balance depreciation.

What is Golden's straight line rate?

What is the Depreciation Expense for Year 1?

What is Net Income for Year 1?

What is the Book Value of the equipment at the end of Year 1?

What are the Cash Flows from Operating Activities for Year 1?

What is the Depreciation Expense for Year 2?

What is Net Income for Year 2?

What is the book value of the equipment at the end of Year 2?

What are the Cash Flows from Operating Activities for Year 2?

Answer 1

SOLUTION

Depreciation Calculation: (Cost - Accumulated Depr.) x (2 x SL Rate)

SL Rate = 1 ¸ 6 = .16667

Year 1 ($120,000 - $ -0-) x (2 x .16667) = $40,000*

Year 2 ($120,000 - $40,000) x (2 x .16667) = $26,667*

     *Rounded

Golden Manufacturing Company T Accounts
Assets	=	Stockholders’ Equity
Cash		Common Stock		Retained Earnings
Year 1				Year 1				Year 1
	150,000		120,000					150,000		cl	40,000	cl	72,000
	72,000						Bal.	150,000				Bal.	32,000
Bal.	102,000								Year 2
Year 2									cl	26,667	cl	83,000
	83,000											Bal.	88,333
Bal.	185,000
										Sales Revenue
										Year 1
Equipment							cl	72,000		72,000
Year 1											Bal.	-0-
	120,000						Year 2		83,000
Bal.	120,000								cl          83,000
												Bal.	-0-
Accumulated Depr.							Depreciation Expense
Year 1									Year 1
			40,000								40,000	cl	40,000
		Bal.	40,000							Bal.            -0-
Year 2									Year 2
			26,667							26,667	cl	26,667
		Bal.	66,667							Bal.            -0-

Golden Manufacturing Company Financial Statements
	Year 1	Year 2
Income Statements
Sales Revenue	72,000	$83,000
Depreciation Expense	(40,000)	(26,667)
Net Income	$32,000	$56,333
Balance Sheets
Assets
Cash	$ 102,000	$185,000
Equipment	120,000	120,000
Accumulated Depreciation	(40,000)	(66,667)
Total Assets	$182,000	$238,333
Stockholders’ Equity
Common Stock	$150,000	$150,000
Retained Earnings	32,000	88,333
Total Stockholders’ Equity	$182,000	$238,333
Statements of Cash Flows
Cash Flows From Operating Activities:
Inflow from Customers	$ 72,000	$ 83,000
Cash Flows From Investing Activities:
Outflow to Purchase Equipment	(120,000)	-0-
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