***Please Answer Quickly***

Info:

Scenario A:

Daniel bought a brand-new truck for his landscaping business. He paid $30,000, the full amount up front. Assuming there is no salvage value, he plans to use it for 10 consecutive years. His assistant records this transaction on the balance sheet as equipment for $30,000 on the day of the purchase. He had expensed the whole amount on the day of purchase.

After two years of owning his truck, Daniel decided to apply for a loan and met with Mr. Thompkins, the bank loan officer. A few minutes into the appointment, Daniel gave him his company's balance sheet. Mr. Thompkins asked Daniel several questions about how the information was provided. Daniel said he would contact him in a few days with the requested information. Daniel claimed that he was using GAAP. Help Daniel to answer the loan officer's questions.

QUESTIONS:

Scenario A

What is the effect of this transaction on the related equipment accounts in year one and year two?

Does he need to make any adjusting entries? Explain why or why not.

What would be the effect of making adjusting entries on the financial statements?

Why do you think GAAP recognizes accrual-based accounting and not cash based accounting? What are its benefits?

How would accrual-based accounting help them better manage their business?

If you set up your own small business, should you use cash accounting or accrual accounting? Why?