Accounting for Long-term Assets
Below you will find the financial statements and journal entries for the four years in which the computer was used and the straight-line depreciation method was employed.
Illustration 8-7: Financial statements under the straight-line depreciation method
| Financial Statements under Straight-line Depreciation Method |
||||
| Income Statement |
||||
|
|
20X7 |
20X8 |
20X9 |
20X0 |
| Revenue |
$9,000 |
$9,000 |
$9,000 |
$9,000 |
| Depreciation Expense |
(5,000) |
(5,000) |
(5,000) |
(5,000) |
| Operating Income |
$4,000 |
$4,000 |
$4,000 |
$4,000 |
| Gain |
0 |
0 |
0 |
1,000 |
| Net Income |
$4,000 |
$4,000 |
$4,000 |
$5,000 |
| Balance Sheet |
||||
| Assets |
|
|
|
|
| Cash |
$11,000 |
$20,000 |
$29,000 |
$42,000 |
| Computer |
$23,000 |
$23,000 |
$23,000 |
0 |
| Accumulated Depreciation |
(5,000) |
(10,000) |
(15,000) |
0 |
| Total Assets |
$29,000 |
$33,000 |
$37,000 |
$42,000 |
| Equity |
|
|
|
|
| Contributed Capital |
$25,000 |
$25,000 |
$25,000 |
$25,000 |
| Retained Earnings |
4,000 |
8,000 |
12,000 |
17,000 |
| Total Equity |
$29,000 |
$33,000 |
$37,000 |
$42,000 |
| Statement of Cash Flows |
||||
| Operating Activities |
|
|
|
|
| Inflow from Clients |
$9,000 |
$9,000 |
$9,000 |
$9,000 |
| Investing Activities |
|
|
|
|
| Outflow to Purchase Computer |
(23,000) |
$ 0 |
$ 0 |
$ 0 |
| Inflow from Sale of Computer |
0 |
0 |
0 |
4,000 |
| Financing Activities |
|
|
|
|
| Inflow from Capital Acquisition |
$25,000 |
0 |
0 |
0 |
| Net Change in Cash |
$11,000 |
$9,000 |
$9,000 |
$13,000 |
| Beginning Cash Balance |
$ 0 |
$11,000 |
$20,000 |
$29,000 |
| Ending Balance |
$11,000 |
$20,000 |
$29,000 |
$42,000 |
Illustration 8-8: Journal entries posted by Mr. Serfy
| Event No |
Account titles |
Debit |
Credit |
| 1 |
Cash |
25,000 |
|
|
|
Contributed Capital |
|
25,000 |
| 2 |
Computer |
23,000 |
|
|
|
Cash |
|
23,000 |
| 3* |
Cash |
9,000 |
|
|
|
Revenue |
|
9,000 |
| 4* |
Depreciation Expense |
5,000 |
|
|
|
Accumulated Depreciation |
|
5,000 |
| 5 |
Cash |
4,000 |
|
|
|
Accumulated Depreciation |
20,000 |
|
|
|
Computer |
|
23,000 |
|
|
Gain on Sale of Computer |
|
1,000 |
* These entries are repeated annually from 20X7 to 20X0.
Page 4 of 9
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