Question

Financial Statements of a Manufacturing Firm The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes: • Purchased $401,700 of materials. • Used $345,500 of direct materials in production. • Incurred $296,000 of direct labor wages. • Applied factory overhead at a rate of 80% of direct labor cost. • Transferred $843,200 of work in process to finished goods. • Sold goods with a cost of $803,400. • Revenues earned by selling bikes, $1,438,100. • Incurred $345,500 of selling expenses. • Incurred $128,500 of administrative expenses.

a. Prepare the income statement for Rushmore Biking Inc. for the month ending February 28.

Assume that Rushmore Biking Inc. uses the perpetual inventory method.

Rushmore Biking Inc.

Income Statement For the Month Ended February 28 $ $

Selling and administrative expenses: $

Total selling and administrative expenses $

b. Determine the inventory balances on February 28, the end of the first month of operations.

Materials inventory, February 28 $

Work in process inventory, February 28 $

Finished goods inventory, February 28 $

Answer 1

1.

Income statement

Sales	$1,438,100
Less: Cost of goods sold	($803,400)
Gross profit	$634,700
Less: Selling and administrative expenses
Selling expenses	$345,500
Administrative expenses	$128,500
Selling and administrative expenses	($474,000)
Operating income	$160,700

B.

Inventory balances

Materials inventory, Feb 28 ($401,700-$345,500) =$56,200

Work-in-process Inventory, Feb 28 ($345,500+{$296,000×1.80}-$843,200) =$35,100

Finished goods inventory, Feb 28 ($843,200-$803,400) =$39,800