Golden Manufacturing Company started operations by acquiring $150,000 cash from the issue of common stock. On January 1, Year 1, the company purchased equipment that cost $120,000 cash, had an expected useful life of six years, and had an estimated salvage value of $4,000. Golden Manufacturing earned $72,000 and $83,000 of cash revenue during Year 1 and Year 2, respectively. Golden Manufacturing uses double-declining-balance depreciation.
Required

a. Record the purchase in a horizontal statements model.
b-1. Prepare income statements for Year 1 and Year 2.
b-2. Prepare balance sheets for Year 1 and Year 2.
b-3. Prepare statements of cash flows for Year 1 and Year 2.

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anthougo anthougo · Answer 2 · 2022-03-25T14:13:10+01:00

a. Recording the equipment purchase by Golden Manufacturing Company in a horizontal statements model is as follows:

Balance Sheet Income Statement Statement of Cash Flows

Assets:

Equipment +$120,000 Investing Activities -$120,000

Cash -$120,000

b-1. The preparation of income statements for Year 1 and Year 2 for Golden Manufacturing Company is as follows:

Golden Manufacturing Company

Income Statements for Year 1 and Year 2

Year 1 Year 2

Revenue $72,000 $83,000

Depreciation expense (40,000) (27,000)

Net income $32,000 $56,000

b-2. The preparation of balance sheets for Year 1 and Year 2 for Golden Manufacturing Company is as follows:

Golden Manufacturing Company

Balance Sheets for Year 1 and Year 2

Year 1 Year 2

Assets:

Cash $102,000 $185,000

Equipment $120,000 $120,000

Accumulated Depreciation 40,000 80,000 67,000 53,000

Total assets $182,000 $238,000

Equity:

Common Stock $150,000 $150,000

Retained Earnings 32,000 88,000

Total equity $182,000 $238,000

b-3. The preparation of the statements of cash flows for Year 1 and Year 2 for Golden Manufacturing Company is as follows:

Golden Manufacturing Company

Statement of Cash Flows for Year 1 and Year 2

Year 1 Year 2

Operating Activities:

Net income $32,000 $56,000

Add non-cash expense: Depreciation 40,000 27,000

Adjusted operating income $72,000 $83,000

Financing Activities:

Common Stock Issuance $150,000 $0

Investing Activities:

Purchase of Equipment -$120,000 $0

Total cash inflows $102,000 $83,000

What is the horizontal statements model?

The horizontal statements model comprises the balance sheet, income statement, and statement of cash flows.

The model shows the changes in the amounts of corresponding financial statement items over a period of time.

Data and Calculations:

January 1, Year 1: Equipment $120,000 Cash $120,000

Estimated useful life = 6 years

Estimated salvage value = $4,000

Annual depreciation rate = 33.3% (100/6 x 2)

Depreciation for Year 1 = $40,000 ($120,000 x 33.3%)

Declined balance = $80,000 ($120,000 - $40,000)

Depreciation for Year 2 = $27,000 ($80,000 x 33.3%)

Accumulated Depreciation at end of Year 2 = $67,000

Cash balance at the end of year 1 = $102,000 ($150,000 - $120,000 + $72,000)

Cash balance at the end of year 2 = $185,000 ($102,000 + $83,000)

Learn more about the horizontal statements model at https://brainly.com/question/24719795