Golden Manufacturing Company started operations by acquiring $91,000 cash from the issue of common stock. On January 1, 2016, the company purchased equipment that cost $91,000 cash, had an expected useful life of six years, and had an estimated salvage value of $18,200.

Golden Manufacturing Company started operations by acquiring $91,000 cash from the issue of common stock. On January 1, 2016, the company purchased equipment that cost $91,000 cash, had an expected useful life of six years, and had an estimated salvage value of $18,200. Golden Manufacturing earned $93,390 and $63,610 of cash revenue during 2016 and 2017, respectively. Golden Manufacturing uses double-declining-balance depreciation.


Required:

Prepare income statements, balance sheets, and statements of cash flows for 2016 and 2017. Use a vertical statements format. (Hint: Record the events in T-accounts prior to preparing the statements.)

Explanation:

Depreciation calculation: (Cost – Accumulated depr.) × (2 × SL Rate) SL Rate = 1 ÷ 6 = 0.16667

Year 1 ($91,000 – $0) × (2 × 0.16667) = $30,333*

Year 2 ($91,000 – $30,333) × (2 × 0.16667) = $20,222*

*Rounded

Cash

2016
	91,000			91,000
	93,390
Bal.	93,390
2017
	63,610
Bal.	157,000

Equipment

2016
	91,000
Bal.	91,000

Accumulated Depr.

2016
				30,333
			Bal.	30,333
2017
				20,222
			Bal.	50,555

Common Stock

2016				91,000
			Bal.	91,000

Retained Earnings

2016
cl	30,333		cl	93,390
			Bal.	63,057
2017
cl	20,222			63,610
			Bal.	106,445

Sales Revenue

2016
cl	93,390			93,390
			Bal.	0
2017
cl	63,610			63,610
			Bal.	0

Depreciation Expense

2016
	30,333		cl.	30,333
Bal.	0
2017
	20,222		cl.	20,222
Bal.	0

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The following events apply to Gulf Seafood for the 2016 fiscal year:

The following events apply to Gulf Seafood for the 2016 fiscal year:

 
1.     The company started when it acquired $32,000 cash by issuing common stock.
2.     Purchased a new cooktop that cost $16,800 cash.
3.     Earned $17,500 in cash revenue.
4.     Paid $12,500 cash for salaries expense.
5.    

Adjusted the records to reflect the use of the cooktop. Purchased on January 1, 2016, the cooktop has an expected useful life of five years and an estimated salvage value of $2,700. Use straight-line depreciation. The adjusting entry was made as of December 31, 2016.
Required
a.     Record the events in general journal format and post to T-accounts.




Explanation:
Depreciation expense:
$16,800 – $2,700 = $14,100; $14,100 ÷ 4 = $2,820

b.     Prepare a balance sheet and a statement of cash flows for the 2016 accounting period.
 


c.     What is the net income for 2016?
 
d.     What amount of depreciation expense would Gulf Seafood report on the 2017 income statement?

e.     What amount of accumulated depreciation would Gulf Seafood report on the December 31, 2017, balance sheet?
      
F.  Would the cash flow from operating activities be affected by depreciation in 2017?
Answer

NO.
Thank you!