Question

Gunn Manufacturing Company experienced the following accounting events during its first year of operation. Assume that all transactions involving exchanges are for cash. Acquired $80,000 cash by issuing common stock. Paid $9,200 for the materials used to make its products, all of which were started and completed during the year. Paid salaries of $3,800 to selling and administrative employees. Paid wages of $12,000 to production workers. Paid $9,600 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,600 estimated salvage value and a four-year useful life. Paid $16,000 for manufacturing equipment. The equipment was acquired on January 1. It had a $1,000 estimated salvage value and a five-year useful life. Sold inventory to customers for $38,000 that had cost $18,000 to make. What is the ending balance in the Inventory account?

Answer 1

$3,200

Step-by-step explanation:

This can easily be calculated by using Horizontal Model of Balance Sheet, and just taking those accounts into consideration which will affect the process of Inventory. So, If material is purchased or wages paid to the production workers or definitely selling any inventory then we will consider these accounts in Inventory section of our Horizontal model in Balance sheet. As just the Ending Balance of Inventory is required in the question so we can compute as follows;

(a)

The material in the production of our product is the Direct Material and should be accumulated with cost of Inventory, so

Paid for the materials = $9,200

(b)

The wages paid to the employees in the process of producing a product is our Direct Labor and should be accumulated with the cost of Inventory, so

Paid wages to production workers = $12,000

(c)

The cash received from the sale of inventory will be recorded in Cash and Sales accounts respectively where as Cost of making the equipment will be recorded under Inventory and Cost of Goods sold account respectively and this amount will be deducted from our inventory, as

Cost of Goods Sold = $18,000

Hence the balance on the Inventory section will be calculated as follows:

Ending Balance in Inventory Account = $9,200 + $12,000 - $18,000

Ending Balance in Inventory Account = $3,200