
Concept explainers
a.
The
a.

Answer to Problem 26P
The calculation of income statement of Company W is as follows:
Table (1)
Hence, the net income of Company W is $23,000.
The calculation of balance sheet of Company W is as follows:
Table (2)
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
Balance sheet is one of the financial statements that summarize the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Working notes:
The entire $65,000 is treated as operating expenses.
(1)
The total cash is calculated as follows:
Hence, the total cash is $93,000.
(2)
b.
The balance sheet and income statement of Company W according to GAAP.
b.

Answer to Problem 26P
The calculation of income statement of Company W is as follows:
Table (3)
Hence, the net income of Company W is $75,000.
The calculation of balance sheet of Company W is as follows:
Table (4)
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
Balance sheet is one of the financial statements that summarize the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Working notes:
The
Hence, the depreciation is $13,000.
(3)
The depreciation amount $13,000 must be adjusted in the balance sheet as
(4)
c.
The balance sheet and income statement of Company W according to GAAP.
c.

Answer to Problem 26P
The calculation of income statement of Company W is as follows:
Table (5)
Hence, the net income of Company W is $54,500.
The calculation of balance sheet of Company W is as follows:
Table (6)
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
Balance sheet is one of the financial statements that summarize the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Working notes:
The depreciation on the manufacturing equipment is calculated as follows:
Hence, the depreciation cost is $8,000.
The cost per unit is calculated as follows:
Hence, the cost per unit is $19.
Calculate the cost of goods sold:
Hence, the cost of goods sold is $28,500.
(5)
The total finished goods are calculated as follows:
Hence, the finished goods are $9,500.
(6)
The depreciation on the manufacturing equipment is calculated as follows:
Hence, the accumulated depreciation cost is $8,000.
(7)
d.
Explain the reason why management might be more interested in average cost than the actual cost.
d.

Explanation of Solution
The exact cost of the product cannot be determined because the labor and material usage will differ among the same products. Cost average is an element that smoothens these differences.
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Chapter 10 Solutions
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