Question

Antioch Company makes eBook readers. The company had the following amounts at the beginning of Year 2: Cash, $664,000; Raw Materials Inventory, $62,000; Work in Process Inventory, $33,000; Finished Goods Inventory, $59,000; Common Stock, $586,000; and Retained Earnings, $232,000. Antioch experienced the following accounting events during Year 2. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions.

1. Paid $31,000 of research and development costs.
2. Paid $54,000 for raw materials that will be used to make eBook readers.
3. Placed $85,000 of the raw materials cost into the process of manufacturing eBook readers.
4. Paid $76,000 for salaries of selling and administrative employees.
5. Paid $109,000 for wages of production workers.
6. Paid $115,000 to purchase equipment used in selling and administrative offices.
7. Recognized depreciation on the office equipment. The equipment was acquired on January 1, Year 2. It has a $15,000 salvage value and a five-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($115,000 – $15,000) ÷ 5 = $20,000.
8. Paid $111,000 to purchase manufacturing equipment.
9. Recognized depreciation on the manufacturing equipment. The equipment was acquired on January 1, Year 2. It has a $21,000 salvage value and a nine-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($111,000 – $21,000) ÷ 9 = $10,000.
10. Paid $58,000 for rent and utility costs on the manufacturing facility.
11. Paid $73,000 for inventory holding expenses for completed eBook readers (rental of warehouse space, salaries of warehouse personnel, and other general storage cost).
12. Completed and transferred eBook readers that had total cost of $259,000 from work in process inventory to finished goods.
13. Sold 880 eBook readers for $421,000.
14. It cost Antioch $158,400 to make the eBook readers sold in Event 13.

Required:

a. Show how these events affect the balance sheet, income statement, and statement of cash flows by recording them in a horizontal financial statements model.

c-1. Prepare a schedule of cost of goods manufactured and sold for the year.

c-2. Prepare a formal income statement for the year.

c-3. Prepare a balance sheet for the year.

Answer 1

Requirement-a:

Financial Statement Model
Event No.	Asset	Equity	Income Statement
Cash	Raw Material	Work In process Inventory	Finished Goods	Office Furniture	Manufacturing Equipment	Common Stock	Retained Earnings	Revenue	Expenses	Net Income	Statement Cash flow	Nature
	664,000	62,000	33,000	59,000			586,000	232,000
1.	(31,000)							(31,000)		31,000	(31,000)	(31,000)	Operating Activity
2.	(54,000)	54,000										(54,000)	Operating Activity
3.		(85,000)	85,000
4.	(76,000)							(76,000)		76,000	(76,000)	(76,000)	Operating Activity
5.	(109,000)		109,000									(109,000)	Operating Activity
6.	(115,000)				115,000							(115,000)	Investment Activity
7.					(20,000)			(20,000)		20,000	(20,000)
8.	(111,000)					111,000						(111,000)	Investment Activity
9.						(10,000)		(10,000)		10,000	(10,000)
10.	(58,000)		58,000									(58,000)	Operating Activity
11.	(73,000)							(73,000)		73,000	(73,000)	(73,000)	Operating Activity
12.			(259,000)	259,000
13.	421,000							421,000	421,000		421,000	421,000	Operating Activity
14.				(158,400)				(158,400)		158,400	(158,400)
Balance	458,000	31,000	26,000	159,600	95,000	101,000	586,000	284,600	421,000	210,000	211,000	(206,000)	Net Working Capital