Preparing financial statements Hammer Manufacturing Company started 2007 with the following balances in its inventory accounts:

Raw Materials, $5,400; Work in Process, $5,600; Finished Goods, $6,600. During 2007 Hammer purchased $34,000 of raw materials and issued $33,000 of materials to the production department. It incurred $38,000 of direct labor costs and applied manufacturing overhead of $37,400 to Work in Process Inventory. Assume there was no over- or underapplied overhead at the end of the year.

Hammer completed goods costing $105,000 to produce and transferred them to finished goods inventory. During the year, Hammer sold goods costing $101,400 for $153,800. Selling and administrative expenses for 2005 were $36,000.

Required

a. Using T-accounts, determine the ending balance Hammer would report for each of the three inventory accounts that would appear on the December 31, 2007, balance sheet.

b. Prepare the 2007 schedule of cost of goods manufactured and the 2007 income statement.