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

Solution:

Total cost incurred in production = Direct material used + Direct labor + Overhead

= $9,000 + $12,000 + $18,000 = $39,000

Cost of finished goods produced = $35,000

Cost of ending WIP = $39,000 - $35,000 = $4,000

Cost fo goods sold = $31,500

Cost of ending inventory = $35,000 - $31,500 = $3,500

Cost of ending raw material inventory = $10,000 - $9,000 = $1,000

Cash Account
Particulars	Debit	Particulars	Credit
To common stock	$40,000.00	By Raw Material	$10,000.00
To Sales Revenue	$42,000.00	By labor	$12,000.00
		By overhead	$18,000.00
		By balance C/f	$42,000.00
Total	$82,000.00	Total	$82,000.00

Keystone manufacturing company
Income statement
For the year ended Dec 31, 2019
Particulars	Amount
Sales	$42,000.00
Cost of goods sold	$31,500.00
Net Income	$10,500.00

Kestone Manufacturing Company
Balance Sheet
As on December 31, 2019
Liabilities	Amount	Assets	Amount
Common Stock	$40,000.00	Cash	$42,000.00
Retained Earnings	$10,500.00	Raw material inventory	$1,000.00
		WIP Inventory	$4,000.00
		Finished goods inventory	$3,500.00
Total	$50,500.00	Total	$50,500.00