Tower Company owned a service truck that was purchased at the beginning of 2018

Question

Tower Company owned a service truck that was purchased at the beginning of 2018 for $31,000. It had an estimated life of three years and an estimated salvage value of $4,000. Tower company uses straight-line depreciation. Its financial condition as of January 1, 2020, is shown in the following financial statements model. Assets Equity RevenueExpense Net Income Cash Flow Accumulated Retained Common Stock 9,000 Mach. Cash + 20,000+31,000- - Depreciation + Earnings 18,000 24,000 NA NA NA NA In 2020, Tower Company spent the following amounts on the truck Jan. 4 Overhauled the engine for $6,000. The estimated 1ife was extended one additional year, and the salvage value was revised to $3,000 July 6 Obtained oil change and transmission service, $250. Aug. 7 Replaced the fan belt and battery, $350. Dec. 31 Purchased gasoline for the year, $7,500. 31 Recognized 2018 depreciation expense

Explanation / Answer

Depreciation expense of 2018 = ($31,000 - $4,000) / 3 years

.................................................= $9,000

TOWER COMPANY Statements Model for 2020 Assets = Stockholders' Equity Revenue - Expense = Net Income Cash Flow Date Cash + Mach. - Accumulated Depreciation = Common Stock + Retained Earnings - = Balance $20,000 + $31,000 - $18,000 = $9,000 + $24,000 - = NA 4-Jan ($6,000) + $6,000 - = + - = ($6,000) IA 6-Jul ($250) + - = + ($250) - $250 = ($250) ($250) OA 7-Aug ($350) + - = + ($350) - $350 = ($350) ($350) OA 31-Dec ($7,500) + - = + ($7,500) - $7,500 = ($7,500) ($7,500) OA 31-Dec + - $9,000 = + ($9,000) - $9,000 = ($9,000) NA Total $5,900 + $37,000 - $27,000 = $9,000 + $6,900 - $17,100 = ($17,100) ($14,100) NC

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