Financial Statement Impacts $[6\mathrm{.}5$ points$]$

See template for grading instructions

Background: $,$ ABC Co recently spent $$1,200,000$ to acquire a piece of equipment. The accounting staff is unsure how to properly classify and record the purchase.

Alternative $1$: One employee argues that future benefits of the equipment are unknown beyond the current year $[$meaning that all the future economic benefit is in the current year$]$ and that the expenditure should be expensed completely on the current year income statement.

Alternative $2$: Another employee argues that the expenditure will benefit the current year plus two additional years and should be capitalized as a depreciable asset, depreciating it to a $$0$ salvage value using straightline over a $3-$year time period.

Required: Using the template provided in Canvas, show the financial statement impacts of these two alternatives over the three$-$year period. Ignore income taxes. You will not need to use all lines in the template but remember items in the balance sheet are cumulative amounts and items in the income statement are not cumulative.

ALTERNATIVE $2$: CAPITALIZE AND DEPRECIATE

$\frac{41}{4}$

Statement of Cash Flows

Investing $-$ Purchase of Machinery

Operations $-$ Depreciation

Expense

Income Statement

Depreciation Expense

Year $1$ Year $2$ Year $3$

Balance Sheet $[$Balance sheets are cumulative.$]$

Assets:

Cash

Net PPE

Liabilities:

Equity:

Retained Earnings