Prepare income statements, balance sheets, and statements of cash flows for 2016 and 2017.
Explanation of Solution
Double-declining-balance method:
It is an accelerated method of
T-account:
T-account is the form of the ledger account, where the
Income statement:
Income statement is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
Balance is the financial statement that reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and
Statement of cash flows:
Statement of cash flows is one among the financial statement of a Company statement that shows aggregate data of all
T-accounts are prepared as follows:
Cash | |||
2016 120,000 | 110,000 | ||
85,000 | |||
Bal. | 95,000 | ||
2017 72,000 | |||
Bal. | 167,000 | ||
Equipment | ||||
2016 110,000 | ||||
Bal. | 110,000 | |||
Accumulated Depreciation | |||
2016 | 44,000 (2) | ||
2017 | Bal. | 44,000 | |
26,400 (2) | |||
Bal. | 70,400 |
Common Stock | |||
2016 | 120,000 | ||
Bal. | 120,000 | ||
2016 Cl. 44,000 | Cl. | 85,000 | |
Bal. | 41,000 | ||
2017 Cl. 26,400 | Cl. | 72,000 | |
Bal. | 86,600 |
Service Revenue | ||||||
2016 Cl. 85,000 | 85,000 | |||||
2017 | Cl. 72,000 | Bal. | 0 | |||
72,000 | ||||||
Bal. | 0 |
Depreciation Expense | |||
2016 (2) 44,000 | Cl. | 44,000 | |
Bal. 0 | Cl. | 26,400 | |
2017 (2) 26,40026,667 | |||
Bal. 0 | |||
Prepare income statement, balance sheets, and statements of cash flows for 2016 and 2017 using vertical format.
Company H | ||
Financial Statements | ||
For the Year Ended December 31 | ||
Income Statements | 2016 | 2017 |
Sales Revenue | $85,000 | $72,000 |
Depreciation Expense | ($44,000) | ($26,400) |
Net Income | $41,000 | $45,600 |
Balance Sheets | 2016 | 2017 |
Assets: | ||
Cash | $95,000 | $167,000 |
Equipment | $110,000 | $110,000 |
Less: Accumulated Depreciation | ($44,000) | ($70,400) |
Total Assets | $161,000 | $206,600 |
Stockholders’ Equity: | ||
Common Stock | $120,000 | $120,000 |
Retained Earnings | $41,000 | $86,600 |
Total Stockholders’ Equity | $161,000 | $206,600 |
Statements of Cash Flows | 2016 | 2017 |
Cash Flows From Operating Activities: | ||
Inflow from Customers | $85,000 | $72,000 |
Cash Flows From Investing Activities: | ||
Outflow to Purchase Equipment | ($110,000) | $0 |
Cash Flows From Financing Activities: | ||
Inflow from Stock Issue | $120,000 | $0 |
Net Change in Cash | $95,000 | $72,000 |
Add: Beginning Cash Balance | $0 | $95,000 |
Ending Cash Balance | $95,000 | $167,000 |
Table (1)
Working notes:
Calculate the Double-declining-balance rate:
Note: Straight line depreciation rate =
Calculate the depreciation expense (double-declining-balance method) of equipment for 2016 and 2017:
Year |
Book value at the beginning | × | Double-declining-balance rate (1) | × | Annual depreciation expense |
2016 | ($110,000-$0) | × | 0.4 | × | $44,000 |
2017 | ($110,000-$44,000) | × | 0.4 | × | $26,400 |
Table (2)
(2)
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