The following events took place for Salsa Inc. during May 2010, the first month of operations as a producer of road bikes:

• Purchased $244,000 of materials.

• Used $210,000 of direct materials in production.

• Incurred $180,000 of direct labor wages.

• Applied factory overhead at a rate of 75% of direct labor cost.

• Transferred $510,000 of work in process to finished goods.

• Sold goods with a cost of $485,000.

• Sold goods for $870,000.

• Incurred $210,000 of selling expenses.

• Incurred $75,400 of administrative expenses.

a. Prepare the May income statement for Salsa. Assume that Salsa uses the perpetual inventory method.

b. Determine the inventory balances at the end of the first month of operations.