The following transactions pertain to 2018, the first-year operations of Gibson Company. All inventory was started and completed during 2018. Assume that all transactions are cash transactions.

Acquired $12,000 cash by issuing common stock.

Paid $4,700 for materials used to produce inventory.

Paid $2,400 to production workers.

Paid $900 rental fee for production equipment.

Paid $350 to administrative employees.

Paid $400 rental fee for administrative office equipment.

Produced 400 units of inventory of which 360 units were sold at a price of $25 each.

Required

Prepare an income statement and a balance sheet in accordance with GAAP.

Question

Business

Chocolate

10 November, 01:31

The following transactions pertain to 2018, the first-year operations of Gibson Company. All inventory was started and completed during 2018. Assume that all transactions are cash transactions.

Acquired $12,000 cash by issuing common stock.

Paid $4,700 for materials used to produce inventory.

Paid $2,400 to production workers.

Paid $900 rental fee for production equipment.

Paid $350 to administrative employees.

Paid $400 rental fee for administrative office equipment.

Produced 400 units of inventory of which 360 units were sold at a price of $25 each.

Required

Prepare an income statement and a balance sheet in accordance with GAAP.

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Answers (1)

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Bronson Walls · Answer 1

The preparation is shown below:

Gibson Company

Income statement

For the year 2018

Particulars Amount

Sales (360 units * $25) $9,000

Less: Cost of goods sold - $7,200

Gross profit $1,800

Less: rental fee - $400

Less: administrative employees - $350

Net income $1,050

The computation of cost of goods sold would be

= Materials used to produce inventory + production workers + rental fee for production equipment

= $4,700 + $2,400 + $900

= $8,000

So, the cost of goods sold would be

= $8,000 * 360 units : 400 units

= 7,200

And, the ending balance of finished goods inventory would be

= $8,000 - $7,200

= $800

Gibson Company

Balance sheet

For the year 2018

Liabilities Amount Liabilities Amount

Common stock $12,000 Cash $12,250

Add: Retained earning $1,050 Finished goods inventory $800

Total $13,050 Total $13,050

The cash balance would be

Cash flow from Operating activities

Sales $9,000

Less: cost of goods sold - $7,200

Less: admin expenses - $750

Less: Increase in inventory - $800

Net Cash flow from Operating activities - $250

Cash flow from Investing activities $0

Net Cash flow from Investing activities $0

Cash flow from Financing activities

Issuance of common stock $12,000

Net Cash flow from Financing activities $12,000

The computation of the cash balance

Net Cash flow from Operating activities $250

Net Cash flow from Investing activities $0

Net Cash flow from Financing activities $12,000

Cash balance $12,250