Survey Of Accounting
Survey Of Accounting
4th Edition
ISBN: 9780077862374
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
Question
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Chapter 6, Problem 29P

a

To determine

Prepare the horizontal statement model to show the effects of given transactions on the elements of the financial statements.

a

Expert Solution
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Explanation of Solution

Horizontal analysis model: In this model the analysts will analyse the effect of the transactions on balance sheet, income statement, and statement of cash flows.

Prepare the horizontal statement model to show the effects of given transactions on the elements of the financial statements:

Horizontal Statements Model
Date Assets=Liabilities+Equity Net Income Cash Flows
1/1/14 +− NA NA NA − IA
12/31/14  NA   NA
           
5/5/15  NA   − OA
12/31/15  NA   NA
           
1/1/16 +− NA NA NA − IA
12/31/16  NA   NA
           
3/1/17  NA   − OA
12/31/17  NA   NA
           
1/1/18 +− NA NA NA − IA
12/31/18  NA   NA
           
7/1/19  NA   NA
7/1/19 + NA + + + IA

Table (1)

b

To determine

Compute the amount of depreciation expense Incorporation S will report on the income statements for the years 2014 and 2018.

b

Expert Solution
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Explanation of Solution

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset.

Compute the amount of depreciation expense Incorporation S will report on the income statements for the years 2014 and 2018:

YearComputationDepreciation Expense
2014($38,000$3,000)/5$7,000
2015($38,000$3,000)/57,000
2016($38,000 + $4,000$14,000$3,000)/38,333
2017($38,000 + $4,000$14,000$3,000)/38,333
2018($42,000$2,500$21,666(1))/35,945

Table (2)

Working note 1: Compute the accumulated depreciation:

Accumulated Depreciation in 2017 = Depreciation expense in 2014 to 2017overhaul costs =$7,000 + $7,000 + $8,333 + $8,333$9,000=$30,666$9,000=$21,666

c

To determine

Compute the book value that Incorporation S will report on the balance sheet for the years 2014 and 2018.

c

Expert Solution
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Explanation of Solution

Compute the book value that Incorporation S will report on the balance sheet for the years 2014 and 2018:

Computation of Book Value
YearCostAccumulated  Depreciation=Book Value
2014$38,000$7,000=$31,000
201538,00014,000=24,000
201642,00022,333=19,667
201742,00030,666=11,334
201842,00027,611=14,389

Table (3)

Working note 2: Compute the accumulated depreciation for the year 2018:

Accumulated Depreciation in 2018 = Accumulated Depreciation in 2017+Depreciation expense in 2018=$21,666+$5,945=$27,611

d

To determine

Compute the gain or loss that would be reported on the disposal of equipment on July 1, 2019.

d

Expert Solution
Check Mark

Explanation of Solution

Compute the gain or loss that would be reported on the disposal of equipment on July 1, 2019:

Selling price $8,500
Less: Book value  
    Beginning book value$14,389 
    Less: Depreciation in 2019     ($5,945×6months12)($2,973) 
    Book value on July 1, 2019 ($11,416)
Loss on sale of equipment $2,916

Table (4)

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Chapter 6 Solutions

Survey Of Accounting

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