On January 2nd 2016, Pierre Mercier sat down to prepare the 2015 financial state
ID: 2585437 • Letter: O
Question
On January 2nd 2016, Pierre Mercier sat down to prepare the 2015 financial statements for his furniture construction business WoodStyle, a sole proprietorship, which he started on January 1st, 2012. In this business, Pierre purchases wood, and uses it to make cabinets and small tables, which he then sells to independent craft stores. The balance sheet as of December 315t,2014 read as follows. Current Assets Cash Accounts Receivable: Inventory (wood) Inventory (wip) Inventory (finished goods) Fixed Assets Woodworking Equipment: $2,400 Less: Acc. Depreciation($900) Net Equipment $20,900 $3,600 $500 S600 $1,500 Current Liabilities Wood Account Payable Fixed Liabilities: Bank Loan Outstanding $400 $12,000Explanation / Answer
a. Calculation of Cash T-account for 2015
Particulars
Amount
Particulars
Amount
Opening Balance
20,900
Inventory (Wood)
24,000
Sales receipts
97,000
Payment to blade sharpener
100
Wages
14,700
Salary
35,000
Bank Interest
600
Bank Loan payment
1,900
Misc. (Administrative)
3,200
Balance Carried forward
38,400
TOTAL
117,900
TOTAL
117,900
b. Calculation of Cost of goods sold.
Inventory (Wood) Account
Particulars
Amount
Particulars
Amount
Opening Balance
500
Purchases (See note 2)
23,600
Transferred to WIP (Balancing figure)
23,800
Balance Carried Forward (Given in question)
300
TOTAL
24,100
TOTAL
24,100
Inventory (WIP)
Particulars
Amount
Particulars
Amount
Opening Balance
0
Transfer from Inventory (Wood)
23,800
Transferred to Finished goods
33,800
Wages
10,000
Balance Carried Forward (Given in question)
0
TOTAL
33,800
TOTAL
33,800
Inventory (Finished Goods)
Particulars
Amount
Particulars
Amount
Opening Balance
600
Transfer from Inventory (WIP)
33,800
Cost of goods Sold (Balancing Figure)
33,990
Balance Carried Forward (200 + 14 x 15)
410
TOTAL
34,400
TOTAL
34,400
NOTE1: Calculation of wages to Leslie
Total Wage & Salary expense = $15 x 20 x 50 = $15,000
Wages (Constructing furniture) portion = 15,000 x 2 /3 = $10,000
Salary expense (Administrative) = 15,000 1 / 3 = $5,000
COST of Goods Sold = $34,390
NOTE2: Calculation of purchases made during the year
Purchase = Payment made – Opening Balance of Payables + Closing Balance of payables
= 24,000 – 400 = 23,600
C. Income Statement
Particulars
Amount
Sales (97,000 + 6,200 – 3,600)
99,600
Less: Cost of goods Sold
(33,990)
Contribution Margin
65,610
Less: Indirect Expenses
Salary of Employee
5,000
Salary of Proprietor
35,000
Depreciation Expense (2,400 / 8)
300
Blade Sharpening Expense
100
Bank Interest
600
Miscellaneous Expense
3,200
Net Income
21,410
D. Balance Sheet
Assets
Amount
Liabilities
Amount
Cash
38,400
Capital Account
(14,700 + 21410)
36,110
Accounts Receivable
6,200
Bank Loan Outstanding
(12,000 – 1,900)
10,100
Inventory (Wood)
300
Wood Account Payable
0
Inventory (WIP)
0
Wages & Salary Payable
300
Inventory (Finished)
410
Equipment 2,400
Less: Dep (1,200)
1,200
TOTAL
46,510
TOTAL
46,510
Particulars
Amount
Particulars
Amount
Opening Balance
20,900
Inventory (Wood)
24,000
Sales receipts
97,000
Payment to blade sharpener
100
Wages
14,700
Salary
35,000
Bank Interest
600
Bank Loan payment
1,900
Misc. (Administrative)
3,200
Balance Carried forward
38,400
TOTAL
117,900
TOTAL
117,900
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