Smith Company started operations by acquiring $100,000 cash from the issue of common stock. On January 1,

Question:

Smith Company started operations by acquiring $100,000 cash from the issue of common stock. On January 1, 2012, 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 2012 and 2013, respectively. Smith Company uses double-declining-balance depreciation.

Required

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

Smith Company started operations by acquiring $100,000 cash from

b. Prepare income statements, balance sheets, and statements of cash flows for 2012 and 2013. Use a vertical statementsformat.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...