Question

Fanning Modems, Inc. makes modem cards that are used in notebook computers. The company completed the following transactions during year 1. All purchases and sales were made with cash.

1. Acquired $800,000 of cash from the owners.
2. Purchased $295,000 of manufacturing equipment. The equipment has a $35,000 salvage value and a four-year useful life. Label the purchase of the equipment as Event 2a and the recognition of depreciation as Event 2b.
3. The company started and completed 5,500 modems. Direct materials purchased and used amounted to $45 per unit.
4. Direct labor costs amounted to $30 per unit.
5. The cost of manufacturing supplies purchased and used amounted to $9 per unit.
6. The company paid $55,000 to rent the manufacturing facility.
7. Fanning sold all 5,500 units at a cash price of $145 per unit. Label the recognition of the sale as Event 7a and the cost of goods sold as Event 7b. (Hint: It will be necessary to determine the manufacturing costs in order to record the cost of goods sold.)
8. The sales staff was paid a $8.50 per unit sales commission.
9. Paid $44,000 to purchase equipment for administrative offices. The equipment was expected to have a $3,500 salvage value and a three-year useful life. Label the purchase of the equipment as Event 9a and the recognition of depreciation as Event 9b.
10. Administrative expenses consisting of office rental and salaries amounted to $74,450.

Prepare a balance sheet. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Required

a. Record the transaction data for Fanning Modems, Inc. in the financial statements like the one shown as follows. The first transaction is recorded as an example.

1. b-1. Prepare an income statement.

2. b-2. Prepare a balance sheet.

	FANNING MODEMS, INC. Balance Sheet As of December 31, year 1 Assets: Common stock Retained earnings Common stock Manufacturing equipment, net of acc. depreciation Total assets $0 Equity: Cash Manufacturing equipment, net of acc. depreciation Common stock Total stockholders' equity $0

Prepare an income statement. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

	FANNING MODEMS, INC. Income Statement For the Period Ended December 31, year 1 Sales Cost of goods sold Gross margin 0 Administrative expense Depreciation expense Rent expense Depreciation expense Net income $0

Answer 1

a.	Ref.	Assets	=	Equity	Income statement
	Cash	+	Inventory	+	Manuf. Equipment	+	Office Equipment	=	Common stock	+	Retained earnings	Revenue	-	Expense	=	Net income
	1	800000								800000
	2a.	-295000				295000
	2b.
	(295000-35000)/4			65000		-65000
	3	-247500		247500
	(5500*45)
	4	-165000		165000
	(5500*30)
	5	-49500		49500
	(5500*9)
	6	-55000		55000
	7a.	797500										797500	797500		0		797500
	(5500*145)
	7b.			-582000								-582000	0		582000		-582000
	(Total inventory)
	8	-46750										-46750	0		46750		-46750
	(5500*8.5)
	9a.	-44000						44000
	9b.							-13500				-13500	0		13500		-13500
	(44000-3500)/3
	10	-74450										-74450	0		74450		-74450
	Total	620300		0		230000		30500		800000		80800	797500		716700		80800

b-1.	FANNING MODEMS, INC.
	Income Statement
	For the Period Ended December 31, year 1
				$		$
	Sales					797500
	Cost of goods sold					582000
	Gross margin					215500
	Administrative expense			74450
	Depreciation expense			13500
	Selling expense			46750		134700
	Net income					80800
b-2.	FANNING MODEMS, INC.
	Balance Sheet
	As of December 31, year 1
								$
	Assets:
	Cash							620300
	Manufacturing equipment, net of acc. depreciation							230000
	Office equipment, net of acc. depreciation							30500
	Total assets							880800
	Equity:
	Common stock							800000
	Retained earnings							80800
	Total stockholder's equity							880800