The following transactions pertain to Accounting Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year.
Year 1
1. Acquired $80,000 cash from the issue of common stock.
2. Purchased a computer system for $35,000. It has an estimated useful life of five years and a $5,000 salvage value.
3. Paid $2,450 sales tax on the computer system.
4. Collected $65,000 in fees from clients.
5. Paid $1,500 in fees to service the computers.
6. Recorded double-declining-balance depreciation on the computer system for Year 1.
7. Closed the revenue and expense accounts to Retained Earnings at the end of Year 1.

Year 2
1. Paid $1,000 for repairs to the computer system.
2. Bought off-site backup services to maintain the computer system, $1,500.
3. Collected $68,000 in fees from clients.
4. Paid $1,500 in fees to service the computers.
5. Recorded double-declining-balance depreciation for Year 2.
6. Closed the revenue and expense accounts to Retained Earnings at the end of Year 2.

Year 3
1. Paid $6,000 to upgrade the computer system, which extended the total life of the system to six years. The salvage value did not change.
2. Paid $1,200 in fees to service the computers.
3. Collected $70,000 in fees from clients.
4. Recorded double-declining-balance depreciation for Year 3.
5. Closed the revenue and expense accounts at the end of Year 3.

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

b. Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for Year 1, Year 2, and Year 3.

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Year 1 Event No. Liabilities Stk. Equity Assets Net Inc. Cash Flow 1. NA NA + FA