Effect of depreciation on the accounting equation and financial statements

[The following information applies to the questions displayed below.]

The following events apply to The Ice Cream Parlor for the 2014 fiscal year:

1.

The company started when it acquired $16,000 cash from the issue of common stock.

2.

Purchased a new ice cream machine that cost $16,800 cash.

3.

Earned $20,300 in cash revenue.

4.

Paid $13,000 cash for salaries expense.

5.

Paid $3,500 cash for operating expenses.

6.

Adjusted the records to reflect the use of the ice cream machine. The machine, purchased on January 1, 2014, has an expected useful life of five years and an estimated salvage value of $2,600. Use straight-line depreciation. The adjusting entry was made as of December 31, 2014.

3 Part a

Required

a.

Record the above transactions in a horizontal statements model like the following one. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA) and net change in cash (NC). The letters NA indicate that an element is not affected by the event. (Enter any decreases to account balances and cash outflows with a minus sign.)

THE ICE CREAM PARLOR

HORIZONTAL STATEMENTS MODEL

CASH+EQUIPMENT-ACCUMULATED=COMMON+RETAINED REVENUE-EXPENSE=NET STATEMENT

DEPRECIATION STOCK EARNINGS INCOME OFCASH FLOWS

1

2

3

4

5

6

4 Part b

b.	What amount of depreciation expense would The Ice Cream Parlor report on the 2014 income statement?

DEPRECIATION EXPENSE ( )

5 Part c

c.

What amount of accumulated depreciation would The Ice Cream Parlor report on the December 31, 2014, balance sheet? ACCUMULATED DEPRECIATION ( )

6 Part d

d.

Would the cash flow from operating activities be affected by depreciation in 2014?

	Yes ( )
	No ( )