Question

Wang Company began operations on January 1, 2018, by issuing common stock for $70,000 cash. During 2018, Wang received $88,000 cash from revenue and incurred costs that required $65,000 of cash payments. Prepare a GAAP-based income statement and balance sheet for Wang Company for 2018, for the below scenario:

a. Wang is a promoter of rock concerts. The $65,000 was paid to provide a rock concert that produced the revenue.

b. Wang is in the car rental business. The $65,000 was paid to purchase automobiles. The automobiles were purchased on January 1, 2018, and have five-year useful lives, with no expected salvage value. Wang uses straight-line depreciation. The revenue was generated by leasing the automobiles.

c. Wang is a manufacturing company. The $65,000 was paid to purchase the following items:

(1) Paid $10,000 cash to purchase materials that were used to make products during the year.

(2) Paid $20,000 cash for wages of factory workers who made products during the year.

(3) Paid $5,000 cash for salaries of sales and administrative employees.

(4) Paid $30,000 cash to purchase manufacturing equipment. The equipment was used solely to make products. It had a three-year life and a $6,000 salvage value. The company uses straight-line depreciation.

(5) During 2018, Wang started and completed 2,000 units of product. The revenue was earned when Wang sold 1,500 units of product to its customers.

Answer 1

WANG COMPANY

ANSWER (A)

INCOME STATMENT

Revenue from rock concert	88000
Total Revenue		88000
Expenses
Expenses on rock concert	65000
Total Expenses		65000
Net Income		23000

BALANCE SHEET

Assets
Cash	93000
Total Current Assets		93000
Total Assets		93000
Liabilities
Total Liabilities		0
Owner's Equity
Retained Earnings	23000
Common Stock	70000
Total Owner Equity		93000
Total Liabilities & Owner Equity		93000

ANSWER (B)

INCOME STATMENT

Revenue
Revenue form leasing automobiles	88000
Total Revenue		88000
Expenses
Depreciation	13000
Total Expenses		13000
Net Income		75000

BALANCE SHEET

Assets
Cash	93000
Total Current Assets		93000
Long term Assets
Property Plant & Equipment	65000
Acc. Depreciation	(13000)
Total Long term Assets		52000
Total Assets		145000
Liabilities
Total Liabilities		0
Owner Equity
Retained Earnings	75000
Common Stock	70000
Total Owner Equity		145000
Total Liabilities & Owner Equity		145000

Depreciation on Automobiles = (65000 - 0) / 5 = 13000 for a year.

ANSWER (C)

INCOME STATMENT

Revenue
Sales (1500 Units)	88000
Total Revenue		88000
Expenses
Cost of goods sold	28500
Salaries (Sales & Adm Employees)	5000
Total Expenses		33500
Net Income		54500

BALANCE SHEET

Assets
Cash	93000
Inventories (500 units)	9500
Total Current Assets		102500
Long Term Assets
Property Plant & Equipments	30000
Accumulated Depreciation	(8000)
Total of long term Assets		22000
Total Assets		124500
Liabilities
Total Liabilities		0
Owner Equity
Retained Earnings	54500
Common Stock	70000
Total Owner Equity		124500
Total Liab. & Owner Equity		124500

Depreciation = (30000 - 6000) = 24000 / 3 = $8000 per year

Cost of goods sold = Direct material + Direct Labor + Dep on manufacturing Equipments

COSG = 10000 + 20000 + 8000 = 38000

Cost per unit = 38000 / 2000 = $19 per Unit

Cost of goods sold = 1500 Units x 19 = $28500

Ending Inventory = 500 Units x 19 = $9500