Exercise 8-7B Effect of depreciation on the accounting equation and financial statements The following events apply to The Soda Shop for the Year 1 fiscal year. 1. The company started when it acquired $20,000 cash from the issue of common stock. 2. Purchased a new ice cream machine that cost $20,000 cash. 3. Earned $36,000 in cash revenue. 4. Paid $21,000 cash for salaries expense. 5. Paid $6,000 cash for operating expenses. 6. Adjusted the records to reflect the use of the machine to make ice cream sodas. The machine, pur- chased on January 1, Year 1, has an expected useful life of five years and an estimated salvage value of $5,000. Use straight-line depreciation. The adjustment was made as of December 31, Year 1. Required a. Record the previous transactions in a horizontal statements model like the following one: Balance Sheet Income Statement Assets Stk. Equity Statement of Cash Flows Event Cash Book Value of Equip. Com. Stk. + Ret: Earn. Rev. Exp. Net Inc. b. What amount of depreciation expense would The Soda Shop report on the Year 2 income statement? c. What amount of accumulated depreciation would The Soda Shop report on the December 31, Year 2, balance sheet? d. Would the cash flow from operating activities be affected by depreciation in Year 2?