Question

The following transactions relate to Direct Towing Service. Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year.
2013
1. Acquired $60,000 cash from the issue of common stock.
2. Purchased a used wrecker for $28,000. It has an estimated useful life of three years and a $4,000 salvage value.
3. Paid sales tax on the wrecker of $3,000.
4. Collected $46,200 in towing fees.
5. Paid $8,000 for gasoline and oil.
6. Recorded straight-line depreciation on the wrecker for 2013.
7. Closed the revenue and expense accounts to Retained Earnings at the end of 2013.
2014
1. Paid for a tune-up for the wrecker’s engine, $450.
2. Bought four new tires, $1,000.
3. Collected $56,000 in towing fees.
4. Paid $12,000 for gasoline and oil.
5. Recorded straight-line depreciation for 2014.
6. Closed the revenue and expense accounts to Retained Earnings at the end of 2014.
2015
1. Paid to overhaul the wrecker’s engine, $3,500, which extended the life of the wrecker to a total of four years. The salvage value did not change.
2. Paid for gasoline and oil, $13,200.
3. Collected $62,000 in towing fees.
4. Recorded straight-line depreciation for 2015.
5. Closed the revenue and expense accounts at the end of 2015.

Required
a. Use a horizontal statements model like the following one to show the effect of these transactions on the elements of financial statements. Use + for increase, – for decrease, and NA for not affected. The first event is recorded as an example.


b. For each year, record the transactions in general journal form and post them to T-accounts.
c. Use a vertical model to present financial statements for 2013, 2014, and2015.


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  • CreatedOctober 26, 2013
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