Antioch Company makes eBook readers. The company had the following amounts at th

Question

Antioch Company makes eBook readers. The company had the following amounts at the beginning of 2014: Cash, $664,000; Raw Materials Inventory, $60,000; Work in Process Inventory, $25,000; Finished Goods Inventory, $49,000; Common Stock, $601,000; and Retained Earnings, $197,000. Antioch experienced the following accounting events during 2014. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions.

1. Paid $30,000 of research and development costs.

2. Paid $67,000 for raw materials that will be used to make eBook readers.

3. Placed $84,000 of the raw materials cost into the process of manufacturing eBook readers.

4. Paid $66,000 for salaries of selling and administrative employees.

5. Paid $109,000 for wages of production workers.

6. Paid $131,000 to purchase equipment used in selling and administrative offices.

7. Recognized depreciation on the office equipment. The equipment was acquired on January, 1, 2014. It has a $11,000 salvage value and a six-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($131,000 – $11,000) ÷ 6 = $20,000.

8. Paid $144,000 to purchase manufacturing equipment.

9. Recognized depreciation on the manufacturing equipment. The equipment was acquired on January 1, 2014. It has a $27,000 salvage value and a nine-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($144,000 – $27,000) ÷ 9 = $13,000.

10. Paid $53,000 for rent and utility costs on the manufacturing facility.

11. Paid $79,000 for inventory holding expenses for completed eBook readers (rental of warehouse space, salaries of warehouse personnel, and other general storage cost).

12. Completed and transferred eBook readers that had total cost of $254,000 from work in process inventory to finished goods.

13. Sold 910 eBook readers for $432,000.

14. It cost Antioch $182,000 to make the eBook readers sold in Event 13.

Show how these events affect the balance sheet, income statement, and statement of cash flows by recording them in a horizontal financial statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), a financing activity (FA) and net change in cash (NC). The letters NA indicate that an element is not affected by the event. (Enter any decreases to account balances and cash outflows with a minus sign.)

Prepare a schedule of cost of goods manufactured and sold for the year. (Amounts to be deducted should be indicated with a minus sign.)

Prepare a formal income statement for the year.

Prepare a formal income statement for the year.

Explanation / Answer

Income Statement Statement of cash flow TranactionNo Assets= Liabilities     + Common Stock Retained earning Dr Amount Cr Amount Particular Amount Particular Amt 1 Cash -30000 Research & Development Expenses 30000 OA and NC 2 Cash -67000 OA and NC Raw Material Inventory 67000 3 Raw Material Inventory -84000 Work in Process Inventory 84000 OA 4 Cash -66000 Seling & Administrative Expenses 66000 OA and NC 5 Cash -109000 DirectLabour (WIP) 109000 OA and NC 6 Cash -131000 Office Equipment 131000 IA and NC 7 Accumulated Depreciation -20000 Depreciation on Office Equipment 20000 OA 8 Cash -144000 Manufacturing Equipment 144000 IA and NC 9 Accumulated Depreciation -13000 Depreciation on Manufacturing Equipment (WIP) 13000 OA 10 Cash -53000 Rent and utility cost 53000 OA and NC 11 Cash -79000 Inventory Holding Expenses 79000 OA and NC 12 Finished Good Inventory 254000 WIP Inventory -254000 OA 13 Cash 432000 Sales 432000 OA and NC 14 Finished Good Inventory -182000 Cost of God Sold 182000 Income Statement Sales 432000 Less; Cost of Good Sold 182000 Gross Profit 250000 Less: Operating Expenses Research & Development Expenses 30000 Inventory Holding Expenses 79000 Seling & Administrative Expenses 66000 Depreciation on Office Equipment 20000 195000 Net Income 55000 Note: Depreciation on Office Equipment, rent and utility cost, direct material and labour are manufacturing cost and becomes part of WIP and in COGS we take the amount for the ebooks sold rest the cost is in Finished goods and WIP Balance Sheet Assets Amt Calculation Cash 417000 664000-30000-67000-66000-109000-131000-144000-53000-79000+432000 Raw Material Inventory 43000 60000+67000-84000 WIP Inventory 30000 25000+84000+109000+13000+53000-254000 Finished Good Inventory 121000 49000+254000-182000 Office Equipment 131000 Accumulated Depreciation -20000 111000 Manufacturing Equipment 144000 Accumulated Depreciation -13000 131000 Total Assets 853000 Common Stock 601000 Retained earnings (197000+55000) 252000 Total stockholder Equity 853000

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