Problem 10-23 Effect of product versus period costs on financial statements LO 10-2, 10-3 Gibson 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 1. Acquired $52,000 cash by issuing common stock 2. Paid $7,700 for the materials used to make its products, all of which were started and completed during the year. 3. Paid salaries of $4,200 to selling and administrative employees. 4. Paid wages of $6,600 to production workers. 5. Paid $5,500 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,100 estimated salvage value and a four-year useful life. 6. Paid $8,600 for manufacturing equipment. The equipment was acquired on January 1. It had a $1,600 estimated salvage value and a two-year useful life. 7. Sold inventory to customers for $25,500 that had cost $13,300 to make. Indicate 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. (Enter any decreases to account balances with a minus sign. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), financing activity (FA), or leave the cell blank if there is no effect.) Financial Statements Model Assets Equity Income Statement Common stock Event No. Manuf. Office Furn. Ret. Ear. Inventory Net Inc. Cash flow Cash Rev. Exp. + Equip. 52,000 52,000 52,000 FA 2 + _ 3 4 + + _ 5 5b + + + _ 6a = 6b + 7a = 7b Total +