Question

McQueen Motor Company manufactures automobiles. During September 2017, the company purchased 5,000 head lamps at a cost of $15 per lamp. McQueen withdrew 4,650 lamps from the warehouse during the month. Fifty of these lamps were used to replace the head lamps in autos used by traveling sales staff. The remaining 4,600 lamps were put in autos manufactured during the month.

Of the autos put into production during September 2017, 90% were completed and transferred to the company's storage lot. Of the cars completed during the month, 70% were sold by September 30.

Instructions

(a)  

Determine the cost of head lamps that would appear in each of the following accounts at September 30, 2017: Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold, and Selling Expenses.

(b)  

Write a short memo to the chief accountant, indicating whether and where each of the accounts in (a) would appear on the income statement or on the balance sheet at September 30, 2017.

Answer 1

Solution:

a) Determining the Cost of Head Lamps that Would appear in Each of the following Accounts at September 30 2017:

Particulars	Calculation	Amount
Raw Materials	(5,000 - 4,650) * $15	$5,250
Work in Process	(4,600 * 10%) * $15	$6,900
Finished Goods	(4,600 * 90% * 30%) * $15	$18,630
Cost of Goods Sold	(4,600 * 90% * 70%) * $15	$43,470
Selling Expenses	50 * $15	$750

Raw Materials	$5,250
Work in Process	$6,900
Finished Goods	$18,630
Cost of Goods Sold	$43,470
Selling Expenses	$750
Total (5,000 * $15)	$75,000

b) Writing a Short Memo to the Cheif Accountant Inidcating whether and where each of the accounts in (a) would appear on the income statement or on the balance sheet at September 30, 2017:

To:Chief Accountant

From:Student

Subject: Statement Presentation of Accounts

Income Statement will have two accounts. Cost of Goods Sold will be Deducted from the Sale for determining Gross profit. The Selling expenses will be shown under the Operating Expenses and it will be deducted from the Gross Profit to Determine the Net Income.

Sometimes the Cost of Goods Sold will be shown in the Income Statement. In this type of case, the balance in Finished Goods Inventory also be shown in the Income Statement. The Other Accounst will associate with the Inventory Accounts which contain the End of Period Balances.

Therefore, they will be Reported Under Inventories in the current Assets Section of the Balance Sheet in Finished Goods, work in process and Raw Materials.