Bird Manufacturing paid $62,000 to purchase a computerized assembly machine on J

Question

Bird Manufacturing paid $62,000 to purchase a computerized assembly machine on January 1, 2014. The machine had an estimated life of eight years and a $2,000 salvage value. Bird's financial condition as of January 1, 2017, is shown in the following financial statements model. Bird uses the straight-line method for depreciation.

Added an overdrive mechanism for $8,000 that would improve the overall quality of the performance of the machine but would not extend its life. The salvage value was revised to $2,500.

Record the 2017 transactions in a statements model like the one shown below. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA) and net change in cash (NC). The letters NA indicate that an element is not affected by the event. The first event is recorded as an example.

Bird Manufacturing paid $62,000 to purchase a computerized assembly machine on January 1, 2014. The machine had an estimated life of eight years and a $2,000 salvage value. Bird's financial condition as of January 1, 2017, is shown in the following financial statements model. Bird uses the straight-line method for depreciation.

Explanation / Answer

Asset Equity Revenues Expenses Net Income Cash Flows Date Cash + Book Value = Common Stock + Retained Earnings Jan-2         (8,000) +             8,000 = NA + NA NA NA NA IA Aug-1         (1,250) + NA = NA +                                    (1,250) NA             (1,250)                (1,250) OA Oct-2             (800) + NA = NA +                                       (800) NA                (800)                   (800) OA Dec-31 NA +           (9,000) = NA +                                    (9,000) NA             (9,000)                (9,000) NA Calculation of Depreciation: Book Value of Machine, Jan 1, 2014          62,000 Less: dep.            (7,500) Book Value of Machine, Dec 31, 2014          54,500 Less: dep.            (7,500) Book Value of Machine, Dec 31, 2015          47,000 Less: dep.            (7,500) Book Value of Machine, Dec 31, 2016          39,500 Add: Overdrive Mechanism - Jan.2, 2017            8,000 Book Valu on Jan 2, 2017          47,500 Less: dep. For 2017          (9,000) Book Value as on Dec 31, 2017          38,500

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