MBA560 Financial and Managerial Accounting: Module 3 P6-24 Optimal Solutions Inc

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MBA560 Financial and Managerial Accounting
Module 3 Homework

Problem 6-24 Purchase and use of tangible asset: three accounting cycles, double- declining- balance depreciation
The following transactions pertain to Optimal Solutions Inc. Assume the transactions for the purchase of the computer and any capital improvements occur on January 1 each year.
2012
1. Acquired $60,000 cash from the issue of common stock.
2. Purchased a computer system for $25,000 cash. It has an estimated useful life of five years and a $3,000 salvage value.
3. Paid $1,500 sales tax on the computer system.
4. Collected $35,000 in data entry fees from clients.
5. Paid $1,200 in fees to service the computers.
6. Recorded double-declining-balance depreciation on the computer system for 2012.
7. Closed the revenue and expense accounts to Retained Earnings at the end of 2012.

2013
1. Paid $800 for repairs to the computer system.
2. Bought a case of toner cartridges for the printers that are part of the computer system, $1,200.
3. Collected $38,000 in data entry fees from clients.
4. Paid $900 in fees to service the computers.
5. Recorded double-declining balance depreciation for 2013.
6. Closed the revenue and expense accounts to Retained Earnings at the end of 2013.

2014
1. Paid $3,000 to upgrade the computer system, which extended the total life of the system to six years.
2. Paid $900 in fees to service the computers.
3. Collected $35,000 in data entry fees from clients.
4. Recorded double-declining balance depreciation for 2014.
5. Closed the revenue and expense accounts to Retained Earnings at the end of 2014.

Required
a. Use a horizontal statements model like the following one to show the effect of these transactions on the elements of financial statements.
b. Use a vertical model to present financial statements for 2012, 2013 and 2014.
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