Question

The following transactions pertain to year 1, the first-year operations of Campbell Company. All inventory was started and completed during year 1. Assume that all transactions are cash transactions.
Acquired $4,700 cash by issuing common stock.
Paid $630 for materials used to produce inventory.
Paid $1,940 to production workers.
Paid $1,210 rental fee for production equipment.
Paid $120 to administrative employees.
Paid $116 rental fee for administrative office equipment.
Produced 360 units of inventory of which 260 units were sold at a price of $13 each.
RequiredPrepare an income statement and a balance sheet in accordance with GAAP.

Answer 1

Answer:

a. In the income statement, Net Income = $414

b. In the balance sheet, Total assets = Total equities and liabilities = $5,114.

Explanation:

Note: See the attached excel file for the income statement and a balance sheet.

An income statement prepared in accordance with the generally accepted accounting principles (GAAP) records income when they are earned and expenses when they are uncured.

A balance sheet prepared in accordance with the generally accepted accounting principles (GAAP) shows assets in order of liquidity. In the prepared balance sheet, current asset starting with the ending cash balance which is the most liquid asset asset is shown first followed by others in there order of liquidity.

The fact that Total assets = Total equities and liabilities = $5,114 in the attached excel file shows the balance sheet is accurately prepared.

In the attached excel file, we have:

Sales revenues = Units sold * Unit price = 260 * $13 = $3,380

Ending finished goods Inventory = Total cost of production * ((Units produced - Units sold) / Units produced) = $3,780 * ((360 - 260) / 360) = (100/360)) = $1,050

Below the income statement and the balance sheet in the attached excel file, there is a working that shows the ending cash balance of $4,064.

Download xlsx