Question

Zachary Company started year 1 with $345,000 in its cash and common stock accounts. During year 1, Zachary paid $258,750 cash for employee compensation and $79,350 cash for materials.

Required

Determine the total amount of assets and the amount of expense shown on the year 1 financial statements assuming Zachary used the labor and materials to make 1,500 chairs. Further, assume that Zachary sold 1,200 of the chairs it made. State the name(s) of the expense account(s) shown on the income statement.

Determine the total amount of assets and the amount of expense shown on the year 1 financial statements assuming Zachary used the labor and materials to provide dental cleaning services to 500 patients. State the name(s) of the expense account(s) shown on the income statement.

	Total assets Total expenses Name of the expense

	Total assets Total expenses Name of the expense

Answer 1

1) Cash at the end = Cash at the beginning - Cash paid for materials - Cash paid to employees

= $345,000 - $79,350 - 258,750 = $6,900

Total cost of goods manufactured = Materials+Labor

= $79,350+$258,750 = $338,100

Cost per chair = $338,100/1,500 chairs = $225.40 per chair

Ending Inventory = 1,500 chairs - 1,200 chairs sold = 300 chairs

Value of Ending Inventory = 300 chairs*$225.40 = $67,620

Total Assets = Cash ending balance+Ending Inventory

= $6,900+$67,620 = $74,520

The expense will be cost of goods sold which is calculated as follows:-

Cost of goods Sold = 1,200 chairs sold*$225.40 per chair = $270,480

Total Assets	$74,520
Total expenses	$270,480
Name of the expense	Cost of goods sold

2) In this case the name of expense will be dental cleaning service expense.

Dental cleaning service Expense = Materials+Labor

= $79,350+$258,750 = $338,100

Total Assets = Cash ending balance = $6,900 (there will be no inventory in this case)

Total Assets	$6,900
Total expenses	$338,100
Name of the expense	Dental Cleaning Service Expense