Question

Fanning Manufacturing Company was started on January 1, year 1, when it acquired $85,000 cash by issuing common stock. Fanning immediately purchased office furniture and manufacturing equipment costing $9,100 and $26,000, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,800 salvage value and an expected useful life of three years. The company paid $11,000 for salaries of administrative personnel and $15,900 for wages to production personnel. Finally, the company paid $13,960 for raw materials that were used to make inventory. All inventory was started and completed during the year. Fanning completed production on 4,600 units of product and sold 3,600 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.)

Required

1. 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.)

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

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

4. 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.)

5. 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.)

6. 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.)

a. Total product cost $

Average cost per unit $

b. Cost of good sold   $

c. Ending inventory   $

d. Net income $

e. Retained earning $

f. Total Assets  

Answer 1

a. Total Product cost

Particulars	$
Raw Materials used	13,960
Depreciation - Manufacturing Equipment ($26,000 - $3,800) / 3	7,400
Wages to production personnel	15,900
Total Product Cost	37,260

Average cost per unit

Total Product cost / Units produced = $37,260 / 4,600 Units = $8.10 per unit.

b. Cost of goods sold

Cost of goods sold = Units Sold * Average cost per unit = 3,600 Units * $8.10 per unit = $29,160

c. Ending Inventory

Ending Inventory = (4,600 Units - 3,600 Units) * $8.10 per unit = 1,000 Units * $8.10 per unit = $8,100

d. Net Income

Particulars	$
Sales (3,600 Units * $15)	54,000
Less: Cost of goods sold	29,160
Gross Margin	24,840
Less: Operating expenses
Depreciation - Office furniture ($9,100 - $0) / 8	1,138
Salaries of administrative personnel	11,000
Net Income	12,702

e. Retained Earnings

Retained earnings = $12,702

f. Total Assets

Particulars	$
Cash	63,040
Ending Inventory	8,100
Office Furniture ($9,100 - $1,138)	7,962
Manufacturing Equipment ($26,000 - $7,400)	18,600
Total Assets	97,702

Working Notes:

Cash

Particulars	$
Cash Sales	54,000
Cash received from issue of common stock	85,000
Less: Cash Expenses
Office Furniture purchased	9,100
Manufacturing Equipment	26,000
Salaries of administrative personnel	11,000
Wages to production personnel	15,900
Raw Materials purchased	13,960
Cash in hand	63,040

All the best...