Question

Effect of product cost and period cost: Horizontal statements model The Pet Store experienced the following events for the 2018 accounting period: 1. Acquired $60,000 cash from the issue of common stock. 2. Purchased $65,000 of inventory on account. 3. Received goods purchased in Event 2 FOB shipping point, freight cost of $900 paid in cash. 4. Sold inventory on account that cost $38,000 for $71,000. 5. Freight cost on the goods sold in Event 4 was $620. The goods were shipped FOB destination. Cash was paid for the freight cost. 6. Customer in Event 4 returned $4,200 worth of goods that had a cost of $2,150. 7. Collected $58,300 cash from accounts receivable. 8. Paid $59,200 cash on accounts payable. 9. Paid $2,600 cash for advertising expense. 10. Paid $3,100 cash for insurance expense. Required a. Which of these events affect period (selling and administrative) costs? Which result in product costs? If neither, label the transaction NA. b. Record each event in a horizontal statements model like the following one. The first event is recorded as an example. Rov. - Exo. - Net Inc. Cash Flow - = Cash 60,000 Assets Accts. Rec. NA + + + + mv. NA E Liab. Aucts. Pay. N A + + + C. Stk. 60,000 Equity + Rel. Earn. + NA MA - NA - NA 60,000FA

Answer 1

TRANSACTION		COST
1		NA
2		Product
3		Product
4		Product
5		Period
6		Product
7		NA
8		NA
9		Period
10		Period

SN.		ASSETS					LIABILITIES		EQUITY		REVENUE	-	EXPENSES	=	NET INCOME	CASH FLOW
	CASH	+	ACCOUNTS RECEIVABLE	+	INVENTORY	=	ACCOUNT PAYABLE	+	COMMON STOCK	RETAINING EARNING
1	60000		NA		NA		NA		60000	NA	NA		NA		NA	60000	FA
2	NA		NA		65000		65000		NA	NA	NA		NA		NA	NA	NA
3	-900		NA		900		NA		NA		NA					-900	OA
4	NA		71000		-38000		NA		NA	33000	71000		38000		33000	NA	NA
5	-620		NA		NA		NA		NA	-620	NA		620		-620	-620	OA
6	NA		-4200		2150		NA		NA	-2050	-4200		2150		-2050	NA	NA
7	58300		-58300		NA		NA		NA	NA	NA		NA		NA	58300	OA
8	-59200		NA		NA		-59200		NA	NA	NA		NA		NA	-59200	OA
9	-2600		NA		NA		NA		NA	-2600	NA		2600		-2600	-2600	OA
10	-3100		NA		NA		NA		NA	-3100	NA		3100		-3100	-3100	OA
total	51880		8500		30050		5800		60000	24630	62600		46470		24630	51880

Answer 2

The Pet Store experienced the following events for the Year 1 accounting period:

 

1. Acquired $80,000 cash from the issue of common stock.

2. Purchased $76,000 of inventory on account.

3. Received goods purchased in Event 2 FOB shipping point; freight cost of $1,850 paid in cash.

4. Sold inventory on account that cost $43,000 for $81,000.

5. Freight cost on the goods sold in Event 4 was $1,300. The goods were shipped FOB destination. Cash was paid for the freight cost.

6. Customer in Event 4 returned $4,000 worth of goods that had a cost of $2,050.

7. Collected $66,420 cash from accounts receivable.

8. Paid $64,200 cash on accounts payable.

9. Paid $3,550 cash for advertising expense.

10. Paid $3,260 cash for insurance expense.

 

Required

1. Which of these events affect period (selling and administrative) costs? Which result in product costs?

2. Record the above events in a horizontal statement model. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank. The first event is recorded as an example