Question

Problem 10-23 Effect of product versus period costs on financial statements LO 10-2, 10-3 Gibson 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 $52,000 cash by issuing common stock 2. Paid $7,700 for the materials used to make its products, all of which were started and completed during the year. 3. Paid salaries of $4,200 to selling and administrative employees. 4. Paid wages of $6,600 to production workers. 5. Paid $5,500 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,100 estimated salvage value and a four-year useful life. 6. Paid $8,600 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 $25,500 that had cost $13,300 to make.

Answer 1

Income statement Cash Flow Event Number Assets Manufacturing Equipment + Cash + Equity Retained earnings Office Furniture Inventory+ Common stock 52,000 Revenue - Expense Net Income IFA 7,700 52,000 -7,700 -4,200 -6,600 -5,500 4,200 -4,200 -6,600 |ОА -4,200 OA -6,600 OA Increase Decrease Decrease Decrease Decrease 6,600 IA 5,500 -1,100 -1,100 1,100 -1,100 No effect -8,600 IA Decrease 8,600 -3,500 3,500 -3,500 25,500 -13,300 25,500 -3,500 No effect 25,500 OA -13,300 No effect Increase 13,300 25,500 -13,300 *5.b=( 5500-1000)/4=1100 * 6.b=( 8600-1600)/2=3500