Manufacturing cost flow across three accounting cycles The following accounting events affected Liaw Manufacturing Company during its first three years of operation. Assume that all transactions are cash transactions.

Transactions for 2005 1. Started manufacturing company by issuing common stock for $2,400.

2. Purchased $960 of direct raw materials.

3. Used $720 of direct raw materials to produce inventory.

4. Paid $600 of direct labor wages to employees to make inventory.

5. Applied $600 of manufacturing overhead to Work in Process Inventory.

6. Actual manufacturing overhead costs amounted to $610.

7. Finished work on inventory that cost $1,080.

8. Sold goods that cost $720 for $960.

9. Paid $60 for selling and administrative expenses.

Transactions for 2006 1. Acquired additional $1,200 of cash from issuance of common stock.

2. Purchased $960 of direct raw materials.

3. Used $840 of direct raw materials to produce inventory 4. Paid $720 of direct labor wages to employees to make inventory.
5. Applied $640 of manufacturing overhead to Work in Process Inventory.
6. Actual manufacturing overhead costs amounted to $630.
7. Finished work on inventory that cost $1,800.
8. Sold goods that cost $1,680 for $1,920.
9. Paid $120 for selling and administrative expenses.
Transactions for 2007 1. Purchased $600 of direct raw materials.
2. Used $960 of direct raw materials to produce inventory.
3. Paid $360 of direct labor wages to employees to make inventory.
4. Applied $500 of manufacturing overhead to Work in Process Inventory.
5. Actual manufacturing overhead costs amounted to $520.
6. Finished work on inventory that cost $1,980.
7. Sold goods that cost $2,160 for $2,640.
8. Paid $240 for selling and administrative expenses.
9. Paid a cash dividend of $480.
Required

a. Record the preceding events in a horizontal statements model. Close overapplied or underapplied overhead to Cost of Goods Sold. Also designate the classification of cash flows using the letters OA for operating activities, IA for investing activities, and FA for financing activities. The first event is shown as an example.

b. Prepare a schedule of cost of goods manufactured and sold, an income statement, a balance sheet, and a statement of cash flows as of the close of business on December 31, 2005.

c. Close appropriate accounts to the Retained Earnings account.

d. Repeat Requirements a through c for years 2006 and 2007.