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Homework answers / question archive / Golden Manufacturing Company started operations by acquiring $150,000 cash from the issue of common stock
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?
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
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Golden Manufacturing Company T Accounts |
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Assets |
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Stockholders’ Equity |
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Cash |
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Common Stock |
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Retained Earnings |
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| Year 1 |
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Year 1 |
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Year 1 |
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150,000 |
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120,000 |
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150,000 |
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cl |
40,000 |
cl |
72,000 |
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72,000 |
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Bal. |
150,000 |
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Bal. |
32,000 |
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Bal. |
102,000 |
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Year 2 |
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Year 2 |
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cl |
26,667 |
cl |
83,000 |
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83,000 |
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Bal. |
88,333 |
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Bal. |
185,000 |
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Sales Revenue |
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Year 1 |
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Equipment |
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cl |
72,000 |
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72,000 |
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| Year 1 |
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Bal. |
-0- |
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120,000 |
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Year 2 |
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83,000 |
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Bal. |
120,000 |
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cl 83,000 |
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Bal. |
-0- |
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Accumulated Depr. |
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Depreciation Expense |
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| Year 1 |
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Year 1 |
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40,000 |
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40,000 |
cl |
40,000 |
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Bal. |
40,000 |
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Bal. -0- |
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| Year 2 |
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Year 2 |
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26,667 |
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26,667 |
cl |
26,667 |
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Bal. |
66,667 |
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Bal. -0- |
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Golden Manufacturing Company Financial Statements |
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Year 1 | Year 2 |
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Income Statements |
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Sales Revenue |
72,000 |
$83,000 |
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Depreciation Expense |
(40,000) |
(26,667) |
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Net Income |
$32,000 |
$56,333 |
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Balance Sheets |
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Assets |
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Cash |
$ 102,000 |
$185,000 |
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Equipment |
120,000 |
120,000 |
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Accumulated Depreciation |
(40,000) |
(66,667) |
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Total Assets |
$182,000 |
$238,333 |
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Stockholders’ Equity |
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Common Stock |
$150,000 |
$150,000 |
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Retained Earnings |
32,000 |
88,333 |
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Total Stockholders’ Equity |
$182,000 |
$238,333 |
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Statements of Cash Flows |
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Cash Flows From Operating Activities: |
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Inflow from Customers |
$ 72,000 |
$ 83,000 |
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Cash Flows From Investing Activities: |
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Outflow to Purchase Equipment |
(120,000) |
-0- |
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Cash Flows From Financing Activities: |
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Inflow from Stock Issue |
150,000 |
-0- |
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Net Change in Cash |
102,000 |
83,000 |
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Plus: Beginning Cash Balance |
-0- |
102,000 |
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Ending Cash Balance |
$102,000 |
$185,000 |
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