Question

Tower Company owned a service truck that was purchased at the beginning of 2018 for $39,000. It had an estimated life of three years and an estimated salvage value of $6,000. Tower company uses straight-line depreciation. Its financial condition as of January 1, 2020, is shown in the following financial statements model.

Assets

=

Equity

Revenue

−

Expense

=

Net Income

Cash Flow

Cash

+

Machine

−

Accumulated Depreciation

=

Common Stock

+

Retained Earnings

27,000

+

39,000

−

22,000

=

15,000

+

29,000

NA

−

NA

=

NA

NA

In 2020, Tower Company spent the following amounts on the truck:

Jan.	4		Overhauled the engine for $6,700. The estimated life was extended one additional year, and the salvage value was revised to $5,000.
July	6		Obtained oil change and transmission service, $320.
Aug.	7		Replaced the fan belt and battery, $420.
Dec.	31		Purchased gasoline for the year, $8,200.
	31		Recognized 2020 depreciation expense.

Required

1. Record the 2020 transactions in a statements model like the preceding one. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, or NC for net change. If the element is not affected, leave the cell blank. Round your answers to the nearest dollar amount. Enter any decreases to account balances with a minus sign.)

	TOWER COMPANY Statements Model for 2020 Assets = Stockholders’ Equity Revenue − Expense = Net Income Cash Flow Date Cash + Machine − Accumulated Depreciation = Common Stock + Retained Earnings − = Balance 27,000 + 39,000 − 22,000 = 15,000 + 29,000 − = 1/4 + − = + − = 7/6 + − = + − = 8/7 + − = + − = 12/31 12/31 Total + − = + − =

Answer 1

Depreciation for 2020 = ($39000+6700-22000-5000)/2 = $9350

	Cash	Machine	Accumulated Depreciation	Common Stock	Retained Earnings	Revenue	Expenses	Net Income	Cash Flow
Balance	$                27,000	$          39,000	$         22,000	$          15,000	$          29,000
1/4	$                 -6,700	$             6,700							$           -6,700	IA
7/6	$                    -320				$              -320		$                320	$              -320	$              -320	OA
8/7	$                    -420				$              -420		$                420	$              -420	$              -420	OA
12/31	$                 -8,200				$           -8,200		$             8,200	$           -8,200	$           -8,200	OA
12/31			$            9,350		$           -9,350		$             9,350	$           -9,350
Total	$                11,360	$          45,700	$         31,350	$          15,000	$          10,710		$          18,290	$         -18,290	$         -15,640