Question

The following transactions pertain to 2018, the first-year operations of Fanning Company. All inventory was started and completed during 2018. Assume that all transactions are cash transactions. 1. Acquired $4,200 cash by issuing common stock. 2. Paid $710 for materials used to produce inventory. 3. Paid $1,970 to production workers. 4. Paid $792 rental fee for production equipment. 5. Paid $90 to administrative employees. 6. Paid $120 rental fee for administrative office equipment. 7. Produced 310 units of inventory of which 200 units were sold at a price of $14 each.

Required Prepare an income statement and a balance sheet in accordance with GAAP.

Answer 1

1	Income Statement
	Particulars	Amount
	Sales	$2,800
	Less: Cost of goods sold	$2,240
	Gross Profit	$560
	Operating Expenses:
	Salaries expenses	$90
	Office equipment rent expense	$120
	Total Operating expenses	$210
	Operating Profit	$350
	Working Note:
	Sales - Units	200
	Sales price per unit	$14
	Sales revenue	$2,800
	Cost of Goods sold
	Direct Material	$710
	Direct labour	$1,970
	Manufacturing overhead	$792
	Total	$3,472
	Units produced	310
	Cost per unit	$11.20
	Cost of goods sold for 200 units	$2,240
2	Balance Sheet
		Amount
	ASSETS
	Current Assets:
	Cash	$3,318
	Inventory	$1,232
	Total Current Assets	$4,550
	Total Assets	$4,550
	LIABILITIES AND STOCKHOLDER'S EQUITY
	Stockholder's Equity
	Common Stock	$4,200
	Retained Earnings	$350
	Total Stockholder's Equity	$4,550
	Total Liabilities and Stockholder's Equity	$4,550
	Working Note:
	Computation of cash balance
	Acquired cash by issuing stock	$4,200
	Cash received from sales revenue	$2,800
	Less: Amount paid for material	($710)
	Amount paid for direct labour	($1,970)
	Amount paid for rental fee for production equipment	($792)
	Amount paid to administrative employees	($90)
	Amount paid for rental fee for administrative office equipment	($120)
	Cash Balance	$3,318
	Computation of Inventory
	Units Produced	310
	Units sold	200
	Ending Units	110
	Cost per unit	$11.20
	Cost of ending inventory	$1,232