Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year.

Year 1

Acquired $73,000 cash from the issue of common stock.

Purchased a used wrecker for $35,000 cash. It has an estimated useful life of three years and a $6,000 salvage value.

Paid sales tax on the wrecker of $4,000.

Collected $59,100 in towing fees.

Paid $12,300 for gasoline and oil.

Recorded straight-line depreciation on the wrecker for Year 1.

Closed the revenue and expense accounts to Retained Earnings at the end of Year 1.

Year 2

Paid for a tune-up for the wrecker’s engine, $1,200.

Bought four new tires, $1,550.

Collected $65,000 in towing fees.

Paid $18,300 for gasoline and oil.

Recorded straight-line depreciation for Year 2.

Closed the revenue and expense accounts to Retained Earnings at the end of Year 2.

Year 3

Paid to overhaul the wrecker’s engine, $5,100, which extended the life of the wrecker to a total of four years. The salvage value did not change.

Paid for gasoline and oil, $19,400.

Collected $68,000 in towing fees.

Recorded straight-line depreciation for Year 3.

Closed the revenue and expense accounts at the end of Year 3.

Required

a. Use a horizontal statements model to show the effect of these transactions on the elements of financial statements. Use + for increase, − for decrease, +/ − for both increase and decrease, and leave blank for not affected. The first event is recorded as an example. (In the Statement of Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity and leave blank for not affected.)

b. For each year (1,2,3), record the transactions in general journal form and post them to T-accounts.

c. Generate an Income statement, balance sheet, statement of changes in stockholders equity, & statement of cash flows