Question

Perez Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, assume that all transactions are cash transactions and that financial statement data are prepared in accordance with GAAP.
Acquired $55,000 cash by issuing common stock.
Paid $7,400 for the materials used to make its products, all of which were started and completed during the year.
Paid salaries of $4,400 to selling and administrative employees.
Paid wages of $6,800 to production workers.
Paid $4,200 for furniture used in selling and administrative offices.
The furniture was acquired on January 1. It had a $1,600 estimated salvage value and a two-year useful life.
Paid $7,300 for manufacturing equipment. The equipment was acquired on January 1. It had a $1,100 estimated salvage value and a two-year useful life.
Sold inventory to customers for $26,500 that had cost $13,600 to make.

Required:
How these events would affect the balance sheet and income statement by recording them in a horizontal financial statements model as indicated here?The first event is recorded as an example. (Enter decreases to account balances with a minus sign.)

Answer 1

Answer:

In Balance Sheet, Cash is increased by $55,000 and Common Stock account is also increased by $55,000.

Cash account in Balance Sheet is decreased by -$7,400. And Cost of Goods Sold account in Income Statement is increased by $7,400. Selling and Administrative expense account in the Income Statement is increased by +$4,400. And Cash account in Balance sheet is decreased by $4,400

Cash is decreased by $6,800 in Balance Sheet and Wages expense is increased by $6,800 in Income Statement

In the Balance sheet cash is decreased by $4,200 and Furniture and Fixtures account in Balance Sheet is increased by $4,200

Depreciation Expense in Income Statement is increased by $1,300 and Furniture Account balance in Balance sheet is decreased by $1,300.

Cash is decreased by $7,300 and Property, plant and Equipment account in Balance sheet is Increased by $7,300.

Depreciation Expense in Income Statement is increased by $3,100 and Property, Plant and Equipment Account balance in Balance sheet is decreased by $3,100.

Cost of Goods Sold in Income Statement is increased by $13,600. Inventory in hand account in Balance sheet is decreased by $13,600. Revenue account in Income Statement is increased by $26,500. Cash is increased by $26,500 in Balance sheet..

Explanation:

When common stock is issued cash is received so cash account in the balance sheet will be increased and common stock in the balance sheet equity account will also increase by $55,000.

Material is purchased and cash is paid against it. Then cash balance in Balance Sheet is decreased and Purchases in Income Statement is increased by $7,400.  

When salaries are paid to workers cash account in balance sheet is decreased and salary expense is increased in Income statement.

When wages are paid to employees then wages expense in income statement is increased and cash is decreased by $6,800.

Furniture is purchased  so asset account is increased by $4,200 and cash account is decreased by same amount. both of these are recorded in Balance sheet. the depreciation expense account in Income statement is increased by $1,300 [(4200-1600) /2].

Manufacturing equipment is purchased so property plant and equipment account is increased and cash is decreased. both will have effect on Balance sheet accounts. depreciation expense is increased by $3,100 [(7,300-1,100) / 2].

inventory is sold so revenue is increased by $26,500 in Income Statement. and Cost of Goods sold is increased by $13,600.