Question

Adams 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 $51,000 cash by issuing common stock.
2. Paid $7,500 for the materials used to make its products, all of which were started and completed during the year.
3. Paid salaries of $3,900 to selling and administrative employees.
4. Paid wages of $6,500 to production workers.
5. Paid $4,400 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,400 estimated salvage value and a two-year useful life.
6. Paid $9,400 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 $25,800 that had cost $13,800 to make.

Required

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.)

Answer is not complete.

Financial Statements Model Assets Equity Income Statement Event No. Cash + Inventory + Manuf. Equip. + Office Furn. = Common stock + Ret. Ear. Rev. – Exp. = Net Inc. Cash flow 1 51,000 + + + = 51,000 + – = 51,000 FA 2 not attempted + not attempted + not attempted + not attempted = not attempted + not attempted not attempted – not attempted = not attempted not attempted not attempted 3 not attempted + not attempted + not attempted + not attempted = not attempted + not attempted not attempted – not attempted = not attempted not attempted not attempted 4 not attempted + not attempted + not attempted + not attempted = not attempted + not attempted not attempted – not attempted = not attempted not attempted not attempted 5a not attempted +not attempted not attempted +not attempted not attempted +not attempted not attempted =not attempted not attempted +not attempted not attempted not attempted –not attempted not attempted =not attempted not attempted not attempted not attempted 5b not attempted +not attempted not attempted +not attempted not attempted +not attempted not attempted =not attempted not attempted +not attempted not attempted not attempted –not attempted not attempted =not attempted not attempted not attempted not attempted 6a not attempted +not attempted not attempted +not attempted not attempted +not attempted not attempted =not attempted not attempted +not attempted not attempted not attempted –not attempted not attempted =not attempted not attempted not attempted not attempted 6b not attempted +not attempted not attempted +not attempted not attempted +not attempted not attempted =not attempted not attempted +not attempted not attempted not attempted –not attempted not attempted =not attempted not attempted not attempted not attempted 7a not attempted +not attempted not attempted +not attempted not attempted +not attempted not attempted =not attempted not attempted +not attempted not attempted not attempted –not attempted not attempted =not attempted not attempted not attempted not attempted 7b not attempted +not attempted not attempted +not attempted not attempted +not attempted not attempted =not attempted not attempted +not attempted not attempted not attempted –not attempted not attempted =not attempted not attempted not attempted not attempted Total 51,000 + 0 + 0 + 0 = 51,000 + 0 0 – 0 = 0 51,000

Answer 1

Event

Assets

Equity

Income Statement

Cash

+

Inventory

+

Office Furn.

+

Manuf. Equip.

=

Common Stock

+

Ret. Earnings

Rev

-

Exp

=

Net Inc

1

51,000

+

+

+

=

51,000

+

-

=

2

-7,500

+

7,500

+

+

=

+

-

=

3

-3,900

+

+

+

=

+

-3,900

-

3,900

=

-3,900

4

-6,500

+

6,500

+

+

=

+

-

=

5a

-4,400

+

+

4,400

+

=

+

-

=

5b

+

+

-1,500

+

=

+

-1,500

-

1,500

=

-1,500

6a

-9,400

+

+

+

9,400

=

+

-

=

6b

+

3,900

+

+

-3,900

=

+

-

=

7a

25,800

+

+

+

=

+

25,800

25,800

-

=

25,800

7b

+

-13,800

+

+

=

+

-13,800

-

13,800

=

-13,800

Total

45,100

+

4,100

+

2,900

+

5,500

=

51,000

+

6,600

25,800

-

19,200

=

6,600