Solomon Company started year 2 with $90,000 in its cash and common stock accounts. During year 2 Solomon paid $67,500 cash for employee compensation. Assume this is the only transaction that occurred in year 2. Required Determine the total amount of assets at the end of year 2, assuming Solomon is a manufacturing company and the employees were paid to make products. Determine the amount of expense recognized on the year 2 income statement, assuming Solomon is a manufacturing company and the employees were paid to make products. Determine the total amount of assets at the end of year 2, assuming Solomon is a service company. Determine the amount of expense recognized on the year 2 income statement, assuming Solomon is a service company.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Solomon Company started year 2 with $90,000 in its cash and common stock accounts. During year 2 Solomon paid $67,500 cash for employee compensation. Assume this is the only transaction that occurred in year 2.

Required

  1. Determine the total amount of assets at the end of year 2, assuming Solomon is a manufacturing company and the employees were paid to make products.

  2. Determine the amount of expense recognized on the year 2 income statement, assuming Solomon is a manufacturing company and the employees were paid to make products.

  3. Determine the total amount of assets at the end of year 2, assuming Solomon is a service company.

  4. Determine the amount of expense recognized on the year 2 income statement, assuming Solomon is a service company.

 
Expert Solution
Step 1

1) The total amount of assets at the end of year 2, if Solomon is a manufacturing company and the         employees were paid to make products:

     The total amount of assets = cash + Inventory

                                                 = ($90,000 - $67,500) + $67,500

                                                 = $22,500 +$67,500

                                                 = $90,000

 

Notes :

1.$67,500 paid to employees out of cash so deducted from cash

2.As Solomon is a manufacturing company and the amount paid to employees converted into inventory

 

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