Question

Keystone Manufacturing Company started operations on January 1, 2019. During 2019, the company engaged in the following transactions: Issued common stock for $40,000. Paid $10,000 cash to purchase raw materials used to make products. Transferred $9,000 of raw materials to the production department. Paid $12,000 cash for labor used to make products. Paid $18,000 cash for overhead costs (assume actual and estimated overhead are the same). Finished work on products that cost $35,000 to make. Sold products that cost $31,500 to make for $42,500 cash. Required Prepare the December 31, 2019, balance sheet. Prepare the December 31, 2019, income statement.

Answer 1

Keystone Manufacturing Company
Income Statement
31 December 2019.
Sales	$ 42,500.00
Cost of Goods Sold	$ 31,500.00
Gross profit	$ 11,000.00

Keystone Manufacturing Company
Balance Sheet
As at December 31 2019
Assets
Current Assets
Cash	$ 42,500.00
Inventory	$    8,500.00
Total Current Assets	$ 51,000.00
Total Assets	$ 51,000.00
Liabilities and Shareholder's Equity
Common Stock	$ 40,000.00
Retained Earnings	$ 11,000.00
Total Liabilities and Shareholder's Equity	$ 51,000.00

Working Note 1

Ketstone Manufacturing Company
Cost of Goods manufactured
31 December 2019.
Direct material	$    9,000.00
Direct Labor	$ 12,000.00
Manufacturing Overheads	$ 18,000.00
Total Production cost	$ 39,000.00
Add: Opening Work in Progress	$                 -
Less: Closing Work in Progress	$    4,000.00
Total Cost of Goods manufactured	$ 35,000.00

Working Note 2

Cash balance
Issue of Common Stock	$ 40,000.00
Sales	$ 42,500.00
Total Cash Available	$ 82,500.00
Less: Disbursements
Payment for Raw material	$ 10,000.00
Payment for labor costs	$ 12,000.00
Payment for Manufacturing Overheads	$ 18,000.00
Ending Cash Balance	$ 42,500.00

Working Note 3

Raw Material Inventory
Raw material Purchased	$ 10,000.00
Raw material Used	$    9,000.00
Closing Raw Material	$    1,000.00

Working note 4

Total Inventory
Raw material Inventory	$ 1,000.00
WIP Inventory	$ 4,000.00
Finished Goods Inventory	$ 3,500.00
Total Inventory	$ 8,500.00