Thurston Company started its business on January 1, Year 1 by issuing $15,000 of common stock. On January 1, the company purchased equipment for $10,500. The equipment is estimated to have a three-year useful life and a $1,500 salvage value. Customers paid Thurston $54,000 for services performed in Year 1. The company paid $33,000 for operating expenses, and paid a $900 dividend to the stockholders. At year-end, Thurston recognized depreciation expense on the equipment.Required:a) What is the book (carrying) value of the equipment at the end of Year 1?b) What is the net income for Year 1?
What will be an ideal response?
a) $7,500
b) $18,000
a) Year 1 Depreciation expense = (Cost of $10,500 ? Salvage value of $1,500) ÷ Useful life of 3 years = $3,000; Book value = Cost of $10,500 ? Accumulated depreciation of $3,000 = $7,500
b) Net income = $54,000 ? ($33,000 + $3,000) = $18,000
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