Question

Bensen Company began operations when it acquired $60,000 cash from the issue of common stock on January 1, 2018. The cash acquired was immediately used to purchase equipment for $50,000 that had a $10,000 salvage value and an expected useful life of four years.

The equipment was used to produce the following revenue stream (assume all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $8,800 cash. Bensen uses straight-line depreciation.

2018 2019 2020 2021 2022 Revenue $ 26,100 $ 28,500 $ 32,000 $ 31,300 $

Required: Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years.

Present the statements in the form of a vertical statements model.

(Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)

Answer 1

Jan 1 Equipment $50,000 (dr)

Cash $50,000 (cr)

Depreciation for the first year 2018 = Cost Of Asset - Residual Value/Estimated Useful Life = $ 50,000- 10,000/4= $ 10,000

Depreciation for the second year 2019 = Cost Of Asset - Residual Value/Estimated Useful Life = $ 50,000- 10,000/4= $ 10,000

Depreciation for the third year 2020 = Cost Of Asset - Residual Value/Estimated Useful Life = $ 50,000- 10,000/4= $ 10,000

Depreciation for the fourth year 2021 = Cost Of Asset - Residual Value/Estimated Useful Life = $ 50,000- 10,000/4= $ 10,000

Bensen Company

Income Statement

Year 2018 Year 2019 Year 2020 Year 2021 Year 2022

Revenue $ 26,100 $ 28,500 $ 32,000 $ 31,300 $(NotAvailable)

Equipment $ 50,000 --------- ----------- ---------- ------------

Depreciation 10,000 10,000 10,000 10,000

Profit & Loss ($33,900) $ 18,500 $ 22,000 $ 21,300 ----------

Bensen Company

Balance Sheet

Year 2018 Year 2019 Year 2020 Year 2021

Machinery $ 50,000 $ 50,000 $ 50,000 $ 50,000

(at Cost)

Accumulated

Depreciation* ($10,000) ($ 20,000) ( $ 30,000) ($ 40,000)

Asset

Equipment $ 40,000 $ 30,000 $ 20,000 $ 10,000

Equipment Account 5th Year

Written Down Value of Machinery $ 10,000

Sold for $ 8,800

Loss ($ 1,200)

Bensen Company

Statement Of Cash Flows

Year 2018 Year 2019 Year 2020 Year 2021 Year 2022

Operating Income

(33,900) $ 18,500 $ 22,000 $ 21,300 ----------

Depreciation Expense

($10,000) ($ 20,000) ( $ 30,000) ($ 40,000)

Loss On Plant Asset

($ 1200)

Investing Activities

Receipts Sales Of Plant $ 8,800

Financing Activities

Acquisition of Plant Asset

$ 50,000

$ 6,100 ($1,500) ($8000) (18,700)