Question

Running Data began operations on February 1. The company produces GPS watches designed for runners. On February 15, the company purchased 1,700 DVD discs to include with each running watch it sells. The DVD is preloaded with product setup information, an instruction manual including video examples, and warranty details. Each disc cost Running Data $3.

During February, 650 discs were taken from the raw materials inventory. Of these, 90 were taken by the sales manager to sales meetings with prospective retailers to carry the watches and handed out as advertising. The remaining discs were included with the GPS watches that were being manufactured in February. Of the watches that were bundled with the discs during February, 75% were completed and transferred from work in process to finished goods. Of the watches completed during the month, 60% were sold and shipped to customers.

Required:

1. Determine the cost of discs that would be in each of the following accounts at February 28:

	COST OF DISKS
Raw Materials
Work in Progress
finished goods
Costs of goods Sold Advertising Expense

2. Specify whether each of the above accounts would appear on the balance sheet or on the income statement at February 28.

Raw Materials
Work in Progress
finished goods
Costs of goods Sold Advertising Expense

Answer 1

1)
		Cost of Discs
(a)	Raw materials           = (1,700 dics (-) 650 dics ) x 3	$ 3,150
(b)	Work in Process         = ( 650 dics (-) 90 dics ) x ( 100% (-) 75% ) x 3	$ 420
(c )	Finished goods       = ( 650 dics (-) 90 dics ) x   75% x 60% x 3	$ 756
(d)	Cost of goods sold           = ( 650 dics (-) 90 dics ) x   75% x 60% x 3	$ 756
(e)	Advertising expense            = 90 dics x $ 3	$ 270

2)
(a)	Raw materials	Balance Sheet
(b)	Work in Process	Balance Sheet
(c )	Finished goods	Balance Sheet
(d)	Cost of goods sold	Income Statement
(e)	Advertising expense	Income Statement