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.

Transcribed Image Text:

2013 Event No.AetsLiabilities Equity Net Inc. Cash Flow OW NA NA + FA