Smith Company started operations by acquiring \($100,000\) cash from the issue of common stock. On January 1, 2005, the company purchased equipment that cost \($100,000\) cash. The equipment had an expected useful life of five years and an estimated salvage value of \($20,000\) . Smith Company earned \($92,000\) and \($65,000\) of cash revenue during 2005 and 2006, respectively. Smith Company uses double-declining-balance depreciation.

Required:

a. Record the above transactions in a horizontal statements model like the following one.

b. Prepare income statements, balance sheets, and statements of cash flows for 2005 and 2006. Use a vertical statements format.

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Balance Sheet Income Statement Exp. = Net Inc. Assets Equity Rev. - Event Com. Ret. Cash + Equip. A. Depr. = + Stock Earn. Statemt. of Cash Flows