Effect of product versus period costs on financial statements Campbell 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 $51,000 cash by issuing common stock.
Paid $7,500 for the materials used to make its products, all of which were started and completed during the year.
Paid salaries of $4,100 to selling and administrative employees.
Paid wages of $6,800 to production workers.
Paid $9,600 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 four-year useful life.
Paid $11,600 for manufacturing equipment. The equipment was acquired on January 1. It had a $1,100 estimated salvage value and a three-year useful life.
Sold inventory to customers for $26,800 that had cost $13,900 to make.
Required:
Explain how these events would affect the balance sheet and income statement by recording them in a horizontal financial statements model as indicated here.
Financial Statements Model
Assets Equity
Event Manuf. Office Com. Ret Cash
No Cash + Inventory + Equip." + Furn.* = Stk. + Ear. Rev. - Exp. = Net Inc. Flow
1 68,000 68,000 68,000