PROBLEM 2-16 Schedule of Cost of Goods Manufactured; Income Statement [LO2, LO3, LO4, LO5] Swift Company was organized on March 1 of the current year. After five months of start-up losses, management had expected to earn a profit during August. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: cel Swift Company Income Statement For the Month Ended August 31 Sales..... Less operating expenses: Direct labor cost... .. Raw materials purchased Manufacturing overhead Selling and administrative expenses $450,000 $ 70,000 165,000 85,000 142,000 .... .. 462,000 Net operating loss $ (12,000) After seeing the $12,000 loss for August, Swift's president stated, "I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way, I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being." The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam has had little experience in manufacturing operations. Inventory balances at the beginning and end of August were: August 1 August 31 Raw materials $8,000 Work in process. Finished goods $13,000 $21,000 $ 60,000 $16,000 $40,000 The president has asked you to check over the income statement and make a recommendation as to whether the company should look for a buyer for its assets. Required: 1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for August. 2. As a second step, prepare a new income statement for August. 3. Based on your statements prepared in (1) and (2) above, would you recommend that the com- pany look for a buyer?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![PROBLEM 2–16 Schedule of Cost of Goods Manufactured; Income Statement [LO2, LO3, LO4, LO5]
Swift Company was organized on March 1 of the current year. After five months of start-up
losses, management had expected to earn a profit during August. Management was disappointed,
however, when the income statement for August also showed a loss. August's income statement
follows:
eXcel
Swift Company
Income Statement
For the Month Ended August 31
Sales ....
$ 450,000
Less operating expenses:
$ 70,000
165,000
85,000
Direct labor cost
Raw materials purchased
Manufacturing overhead
Selling and administrative expenses
142,000
462,000
Net operating loss
$ (12,000)
After seeing the $12,000 loss for August, Swift's president stated, “I was sure we’d be
within six months, but our six months are up and this loss for August is even worse than July's. I
think it's time to start looking for someone to buy out the company's assets-if we don’t, within a
few months there won't be any assets to sell. By the way, I don't see any reason to look for a new
controller. We'll just limp along with Sam for the time being."
The company's controller resigned a month ago. Sam, a new assistant in the controller's
office, prepared the income statement above. Sam has had little experience in manufacturing
operations.
Inventory balances at the beginning and end of August were:
ble
August 1
August 31
Raw materials
$ 8,000
$ 13,000
Work in process.
Finished goods
$16,000
$40,000
$21,000
$ 60,000
The president has asked you to check over the income statement and make a recommendation
as to whether the company should look for a buyer for its assets.
Required:
As one step in gathering data for a recommendation to the president, prepare a schedule of
cost of goods manufactured for August.
2.
1.
As a second step, prepare a new income statement for August.
3.
Based on your statements prepared in (1) and (2) above, would you recommend that the com-
pany look for a buyer?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc2d22eda-5edd-48ad-9b20-1e4fb4c98fe1%2F267b3ceb-6a7b-477f-ab9b-9dd6eeb2a726%2F4f5yhqs_processed.jpeg&w=3840&q=75)
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