The following transactions relate to Academy Towing Service. Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year.

2016

1. Acquired $70,000 cash from the issue of common stock.

2. Purchased a used wrecker for $32,000. It has an estimated useful life of three years and a $5,000 salvage value.

3. Paid sales tax on the wrecker of $3,000.

4. Collected $56,100 in towing fees.

5. Paid $12,000 for gasoline and oil.

6. Recorded straight-line depreciation on the wrecker for 2016.

7. Closed the revenue and expense accounts to Retained Earnings at the end of 2016.

2017

1. Paid for a tune-up for the wrecker€™s engine, $900.

2. Bought four new tires, $1,250.

3. Collected $62,000 in towing fees.

4. Paid $18,000 for gasoline and oil.

5. Recorded straight-line depreciation for 2017.

6. Closed the revenue and expense accounts to Retained Earnings at the end of 2017.

2018

1. Paid to overhaul the wrecker€™s engine, $4,800, which extended the life of the wrecker to a total of four years. The salvage value did not change.

2. Paid for gasoline and oil, $19,100.

3. Collected $65,000 in towing fees.

4. Recorded straight-line depreciation for 2018.

5. Closed the revenue and expense accounts at the end of 2018.

Required

a. Use a horizontal statements model like the following one to show the effect of these transactions on the elements of financial statements. Use + for increase, - for decrease, and NA for not affected. The first event is recorded as an example.

b. For each year, record the transactions in general journal form and post them to T-accounts.
c. Use a vertical model to present financial statements for 2016, 2017, and 2018.

Transcribed Image Text:

2016 Event No. Assets Liabilities + Equity Net Inc. Cash Flow NA NA + FA