32.Mondova Corporation began operations on January 1. Below is Mondova’s current net income statement and December 31 balance sheet calculated using straight-line depreciation.
Income Statement
Sales revenue
$20,000
Cost of goods sold
9,000
Gross profit
$ 11,000
Depreciation (Note 1)
3,000
Net income
$ 8,000
Balance Sheet
Current assets
$44,000
Equipment
Accumulated depreciation
17,000
Total assets
$61,000
Liabilities (all current)
$45,000
Shareholders' equity
16,000
Total liabilities &shareholders’ equity
Note 1: Equipment was purchased on January 1. Straight-line depreciation method was used with an estimated economic life of 5 years.
A.Determine the estimated salvage value of the equipment being depreciated using the straight-line method.
B.Prepare an income statement and balance sheet in the same format as presented above assuming that Mondova Corporation uses the double-declining-balance depreciation method. The equipment has an estimated economic life of 5 years.
C.Calculate and compare Mondova’s December 31 current ratio, debt/equity ratio, and debt to assets ratio using the financial statements constructed using the straight-line and double-declining-balance methods of depreciation.
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