Sellers Construction Company purchased a compressor for $102,400 cash. It had an estimated useful life of four years and a $9,800 salvage value. At the beginning of the third year of use, the company spent an additional $8,190 related to the equipment. The company's financial condition just prior to this expenditure is shown in the following statements model: Balance Sheet Cash 12,310+ + Assets Book value of Compressor Stockholders' Equity Income Statement 56,100 Common Stock 22,400 Retained Earnings 46,010 Revenue NA Expense NA Statement of Net Income Cash Flows NA NA Required Record the $8,190 expenditure in the statements model under each of the following independent assumptions: Note: In the Statement of Cash Flows column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for investing activity. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input. a. The expenditure was for routine maintenance. b. The expenditure extended the compressor's life. c. The expenditure improved the compressor's operating capacity. Sellers Construction Company Horizontal Statements Model Balance Sheet Income Statement Assets Stockholders' Equity Statement of Cash Book Value of Cash 12,310+ Compressor 56,100 Common Stock Retained Revenue Expenses Net Income Flows Earnings 22,400+ 46,010 a. b. C +++ ++
Sellers Construction Company purchased a compressor for $102,400 cash. It had an estimated useful life of four years and a $9,800 salvage value. At the beginning of the third year of use, the company spent an additional $8,190 related to the equipment. The company's financial condition just prior to this expenditure is shown in the following statements model: Balance Sheet Cash 12,310+ + Assets Book value of Compressor Stockholders' Equity Income Statement 56,100 Common Stock 22,400 Retained Earnings 46,010 Revenue NA Expense NA Statement of Net Income Cash Flows NA NA Required Record the $8,190 expenditure in the statements model under each of the following independent assumptions: Note: In the Statement of Cash Flows column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for investing activity. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input. a. The expenditure was for routine maintenance. b. The expenditure extended the compressor's life. c. The expenditure improved the compressor's operating capacity. Sellers Construction Company Horizontal Statements Model Balance Sheet Income Statement Assets Stockholders' Equity Statement of Cash Book Value of Cash 12,310+ Compressor 56,100 Common Stock Retained Revenue Expenses Net Income Flows Earnings 22,400+ 46,010 a. b. C +++ ++
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Sellers Construction Company purchased a compressor for $102,400 cash. It had an estimated useful life of four years and a $9,800
salvage value. At the beginning of the third year of use, the company spent an additional $8,190 related to the equipment. The
company's financial condition just prior to this expenditure is shown in the following statements model:
Balance Sheet
Assets
Cash +
12,310 +
Book Value of
Compressor
56,100
Stockholders' Equity
Retained
• Common Stock + Earnings
22,400
46,010
Income Statement
Statement of
Revenue
+
NA
Expense
NA
=
Net Income Cash Flows
NA
NA
Required
Record the $8,190 expenditure in the statements model under each of the following independent assumptions:
Note: In the Statement of Cash Flows column, use the initials "OA" for operating activities, "FA" for financing activities, and "IA" for
investing activity. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input.
a. The expenditure was for routine maintenance.
b. The expenditure extended the compressor's life.
c. The expenditure improved the compressor's operating capacity.
Sellers Construction Company
a.
b.
C
Horizontal Statements Model
Balance Sheet
Income Statement
Assets
Stockholders' Equity
Statement of Cash
Net
Cash
+
Book Value of
Compressor
Common
Stock
Retained
Earnings
Revenue
Expenses
Flows
Income
12,310 +
56,100 =
22,400 +
46,010
+
=
=
+
++
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