Benson Manufacturing Company experienced the following accou

Benson Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, assume that all transactions are cash transactions and that financial statement data are prepared in accordance with GAAP 1. Acquired $51,000 cash by issuing common stock. 2. Paid $7,700 for the materials used to make its products, all of which were started and completed during the year. 3. Paid salaries of $4,200 to selling and administrative employees. 4. Paid wages of $6,800 to production workers. 5. Paid $8,200 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,800 estimated salvage value and a four-year useful life 6. Paid $9,400 for manufacturing equipment. The equipment was acquired on January 1. It had a $2,000 estimated salvage value and a two-year useful life. 7. Sold inventory to customers for $25,400 that had cost $13,900 to make. Required Indicate how these events would affect the balance sheet and income statement by recording them in a horizontal financial statements model as indicated here. The first event is recorded as an example. (Enter any decreases to account balances with a minus sign. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), financing activity (FA), or NA for not affected.)

Solution

Financial Statement Model Assets Equity Income statement Event No. Cash + Inventory + Manuf.Equip. + Office Furn. = Common stock + Ret.Ear. Rev. - Exp. = Net Inc. Cash Flow 1 $51,000.00 + + + = $51,000.00 + - = $51,000.00 FA 2 -$7,700.00 + $7,700.00 + + = + - = -$7,700.00 OA 3 -$4,200.00 + + + = + - $4,200.00 = -$4,200.00 OA 4 -$6,800.00 + + + = + - $6,800.00 = -$6,800.00 OA 5a -$8,200.00 + + + $8,200.00 = + - = -$8,200.00 IA 5b + + + -$1,600.00 = + - $1,600.00 = 6a -$9,400.00 + + $9,400.00 + = + - = -$9,400.00 IA 6b + + -$3,700.00 + = + - $3,700.00 = 7a + -$13,900.00 + + = + - $13,900.00 = 7b $25,400.00 + + + = + $25,400.00 - = $25,400.00 OA Total $40,100.00 + -$6,200.00 + $5,700.00 + $6,600.00 = $51,000.00 + $25,400.00 - $30,200.00 = -$4,800.00 $40,100.00 Depreciation on Office furniture for the year = [Cost - salvage value]/Useful life = [$8200-$1800]/4 years = $1600 Depreciation on Manuf.equipment for the year = [Cost - salvage value]/Useful life = [$9400-$2000]/2 years = $3700