Question
Problem 10-23 Effect of product versus period costs on financial statements Sinclair Manufacturing Company experienced the following accounting events during its first year of operation.
Problem 10-23 Effect of product versus period costs on financial statements
Sinclair Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, assume that all transactions are cash transactions and that financial statement data are prepared in accordance with GAAP.
Acquired $68,000 cash by issuing common stock.
Paid $8,700 for the materials used to make its products, all of which were started and completed during the year.
Paid salaries of $4,500 to selling and administrative employees.
Paid wages of $10,000 to production workers.
Paid $9,600 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,600 estimated salvage value and a four-year useful life.
Paid $16,000 for manufacturing equipment. The equipment was acquired on January 1. It had a $1,000 estimated salvage value and a five-year useful life.
Sold inventory to customers for $35,000 that had cost $14,000 to make.
Required
Explain how these events would affect the balance sheet and income statement by recording them in a horizontal financial statements model as indicated here. The first event is recorded as an example.
| Event | Assets | = | Equity | Income Statement | |||||||||||||||||
| Manuf. | Office | Common | 8 | Cash Flow | |||||||||||||||||
| No. | Cash | + | Invent. | + | Equip.* | + | Furn.* | = | Stock | + | Ret. Ear. | Rev. |
| Exp. | = | Net Inc. | |||||
| 1. | 68,000 | + | + | + | = | 68,000 | + |
| = | 68,000 FA | |||||||||||
| 2. | + | + | + | = | + |
| = | ||||||||||||||
| 3. | + | + | + | = | + |
| = | ||||||||||||||
| 4. | + | + | + | = | + |
| = | ||||||||||||||
| 5a. | + | + | + | = | + |
| = | ||||||||||||||
| 5b. | + | + | + | = | + |
| = | ||||||||||||||
| 6a. | + | + | + | = | + |
| = | ||||||||||||||
| 6b. | + | + | + | = | + |
| = | ||||||||||||||
| 7a. | + | + | + | = | + |
| = | ||||||||||||||
| 7b. | + | + | + | = | + |
| = | ||||||||||||||
| Total | $ | + | $ | + | $ | + | $ | = | $ | + | $ | $ |
| $ | = | $ | $ | ||||
*Record accumulated depreciation as negative amounts under these columns.
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Accounting The Basis For Business Decisions
Authors: Robert F. Meigs, Mary A. Meigs, Mark Bettner, Ray Whittington
10th Edition
0070433607, 978-0070433601
