The company experienced the following transactions during 2016. 1. Started business by acquiring $60,000 cash from the

Question:

The company experienced the following transactions during 2016.

1. Started business by acquiring $60,000 cash from the issue of common stock.

2. Purchased bakery equipment for $46,000.

3. Had sales in 2016 amounting to $42,000.

4. Paid $8,200 of cash for supplies which were all used during the year to make baked goods.

5. Incurred other operating expenses of $12,000 for 2016.

6. Recorded depreciation assuming the equipment had a four-year life and $6,000 salvage value. The MACRS recovery period is five years.

7. Paid income tax. The rate is 30 percent.

Required

a. Organize the class into three sections and divide each section into groups of three to five students. Assign each section a depreciation method: straight-line, double-declining-balance, or MACRS.

Group Task

Prepare an income statement and balance sheet using the preceding information and the depreciation method assigned to your group.

Class Discussion

b. Have a representative of each section put its income statement on the board. Are there differences in net income? In the amount of income tax paid? How will these differences in the amount of depreciation expense change over the life of the equipment?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...