Question

Fanning 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.

1. Acquired $54,000 cash by issuing common stock.
2. Paid $7,500 for the materials used to make its products, all of which were started and completed during the year.
3. Paid salaries of $3,700 to selling and administrative employees.
4. Paid wages of $6,100 to production workers.
5. Paid $4,500 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,700 estimated salvage value and a two-year useful life.
6. Paid $7,600 for manufacturing equipment. The equipment was acquired on January 1. It had a $1,200 estimated salvage value and a two-year useful life.
7. Sold inventory to customers for $26,800 that had cost $14,000 to make.

Required

Indicate 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 any decreases to account balances with a minus sign. For changes on the Statement of Cash Flows, indicate whether the item is an operating activity (OA), investing activity (IA), financing activity (FA).)

Answer 1

	Cash	Inventory	Manu. Equipment	Office Furniture	Common Stock	Retained Earnings	Revenue	Expense	Net Income	Cash Flow
1	$54,000				$54,000					54,000 FA
2	($7,500)	$7,500								7,500 OA
3	($3,700)					($3,700)		$3,700	($3,700)	3,700 OA
4	($6,100)					($6,100)		$6,100	($6,100)	6,100 OA
5a	($4,500)			$4,500						4,500 IA
5b [(4,500 – 1,700) / 2 years]				($1,400)		($1,400)		$1,400	($1,400)
6a	($7,600)		$7,600							7,600 IA
6b [(7,600 – 1,200) / 2 years]			($3,200)			($3,200)		$3,200	($3,200)
7a	$26,800					$26,800	$26,800		$26,800	26,800 OA
7b		($14,000)				($14,000)		$14,000	($14,000)
Total	$51,400	($6,500)	$4,400	$3,100	$54,000	($1,600)	$26,800	$28,400	($1,600)