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. On March 1, Thurston issued a $27,000, 6% five-year note to Community Bank. 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 interest expense on the note and depreciation expense on the equipment.Required:a) What is the amount of interest expense Thurston will recognize in Year 1?b) What is the book (carrying) value of the equipment at the end of Year 1?c) What is the net income for Year 1?d) Prepare a

Question

balance sheet as of the end of Year 1.

What will be an ideal response?

Answer 1

a) $1,350
b) $7,500
c) $16,650 
d)


a) Year 1 Interest expense = Principal of $27,000 × 6% × 10/12 = $1,350 
b) 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
c) Net income = $54,000 ? ($33,000 + $3,000 + $1,350) = $16,650