Question

Jordan Manufacturing Company was started on January 1, year 1, when it acquired $83,000 cash by issuing common stock. Jordan immediately purchased office furniture and manufacturing equipment costing $8,400 and $33,500, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,100 salvage value and an expected useful life of four years. The company paid $11,000 for salaries of administrative personnel and $15,300 for wages to production personnel. Finally, the company paid $12,350 for raw materials that were used to make inventory. All inventory was started and completed during the year. Jordan completed production on 4,700 units of product and sold 3,750 units at a price of $15 each in year 1. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.)  

a) Determine the total product cost and the average cost per unit of the inventory produced in year 1. (Round "Average cost per unit" to 2 decimal places.)

b) Determine the amount of cost of goods sold that would appear on the year 1 income statement. (Do not round intermediate calculations.)

c) Determine the amount of the ending inventory balance that would appear on the December 31, year 1, balance sheet. (Do not round intermediate calculations.)

d) Determine the amount of net income that would appear on the year 1 income statement. (Round your final answer value to the nearest whole dollar.)

e) Determine the amount of retained earnings that would appear on the December 31, year 1, balance sheet. (Round your final answer value to the nearest whole dollar.)

f) Determine the amount of total assets that would appear on the December 31, year 1, balance sheet. (Round your final answer value to the nearest whole dollar.)

Answer 1

Solution

Jordan Manufacturing Company

a. Determination of the total product cost and average cost per unit of the inventory produced in year 1:

Total product cost $35,250

Average cost of inventory produced during the year = $7.5 per unit

Computations –

Manufacturing costs –

Depreciation on manufacturing equipment          $7,600

(33,500 – 3,100) x ¼ = 7,600

Wages for production personnel $15,300

Raw materials purchase cost        $12,350

Total manufacturing cost $35,250

Total product cost = $35,250

Total units produced         4,700

Average cost per unit = $35,250/4,700 = $7.50

b. Determination of cost of goods sold that would appear at end of year 1:

Cost of goods sold –

Cost of goods produced = $35,250

Less: cost of ending inventory 950 units, (4,700 – 3,750 units) = $7.5 x 950 = $7,125

Cost of goods sold = $28,125

c. Determination of the amount of ending inventory balance at December 31, Year 1:

Ending inventory balance = ending inventory units x average unit product cost

Ending inventory units = inventory produced – units sold

= 4,700 – 3,750 = 950 units

Ending inventory balance = 950 units x $7.50 = $7,125

Determination of the amount of net income at end of year 1 on income statement –

Hence, net income to be reported in the income statement at the end of Year 1, Dec 31 is $16,075.

a. Determination of the retained earnings at end of Year 1 in the company’s balance sheet –

Retained earnings = $16,075

The net income is credited to retained earnings.

The retained earnings balance would be reduced by dividends paid. Since, no information is given otherwise, the retained earnings would comprise the net income of $16,075.

Total assets –

Computations –

Cash account –

Common stock      $83,000

Office furniture     (8,400)

Mfg. equipment    (33,500)

Admin salaries     (11,000)

Wages to prdn personnel (15,300)

Payment for raw materials (12,350)

Cash sales $56,250

Cash balance at end of Year 1 - $58,700

Ending Finished Goods inventory = $7,125

Office Furniture, less of accumulated depreciation = 8,400 – 1,050 = $7,350

Manufacturing equipment- deprecaition = 33,500 – 7,600 = $25,900

Total assets = $99,075