Balance Sheet Identification And Preparation

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Identify which set of numbers relates to the manufacturer and which relates to the merchandiser. Prepare the current asset section for each company in order of liquidity. Compute the cost of goods sold for two companies using provided financial data. Calculate the cost of goods manufactured and cost of goods sold for two companies. Prepare a manufacturing statement for Randa Company based on given account balances. Prepare an income statement for Randa Company, given certain balances and cost of goods manufactured. Compute cost amounts for input boxes based on cost flow through manufacturing process.

Paper For Above instruction

Understanding corporate financial statements is essential for analyzing a company's operational health and for making informed investment decisions. The ability to identify, prepare, and analyze key financial statements such as the balance sheet, income statement, and manufacturing statements provides insight into a company’s financial stability, efficiency, and profitability.

Identification of Current Assets for Manufacturing and Merchandising Companies

Two companies, a manufacturer (Roller Blades Mfg.) and a grocery distributor (Sunny Foods), reported various current assets at the year-end. For the manufacturer, typical current assets include raw materials inventory, work in process inventory, finished goods inventory, accounts receivable, and prepaid expenses. For the merchandiser, the main current asset would be merchandise inventory, along with cash and receivables.

Based on the given data:

• Company 1 (manufacturer): Raw materials inventory, goods in process inventory, finished goods inventory, accounts receivable, prepaid expenses.
• Company 2 (merchandiser): Merchandise inventory, accounts receivable, cash, prepaid expenses.

Preparation of Current Asset Sections

To prepare the current asset sections, list the assets in order of liquidity, typically starting with cash, followed by accounts receivable, inventory (raw materials, work in process, finished goods for manufacturers; merchandise for merchandisers), and prepaid expenses.

Company 1 - Sunny Foods

• Cash: 9,000
• Accounts receivable, net: 55,000
• Merchandise inventory: 38,750
• Prepaid expenses: Data missing, but assume it is included in the total.
• Total current assets: Sum of individual current assets.

Company 2 - Roller Blades Mfg.

• Cash: 11,000
• Accounts receivable, net: 55,000
• Raw materials inventory: 35,750
• Goods in process inventory: 26,000
• Finished goods inventory: 46,000
• Prepaid expenses: Data missing, inferred as needed.
• Total current assets: Sum of individual current assets.

Calculating Cost of Goods Sold (COGS)

The cost of goods sold is calculated as beginning inventory plus purchases or manufacturing costs, minus ending inventory. For merchandising companies:

COGS = Beginning inventory + Purchases – Ending inventory.

For manufacturing companies, COGS includes the cost of goods manufactured plus beginning inventory of finished goods minus ending inventory of finished goods:

COGS = Beginning finished goods inventory + Cost of goods manufactured – Ending finished goods inventory.

Using the provided data:

• Century Merchandising: Beginning inventory (unknown), Purchases: 450,000, Ending inventory: 231,000.
• New Homes Manufacturing: Beginning inventory (unknown), Finished goods: 662,000, Ending inventory: 225,000.

Calculations will follow these formulas, applying the data to determine the COGS for each company.

Computing Cost of Goods Manufactured and Cost of Goods Sold

For Canyon Company and Rossings Company, the manufacturing process involves calculating total manufacturing costs, including raw materials used, direct labor, and factory overhead, and then adding beginning work in process inventory and subtracting ending work in process inventory to find the cost of goods manufactured (COGM).

Similarly, COGS is derived using the COGM, beginning finished goods inventory, and ending finished goods inventory, reinforcing the link between production costs and sales figures.

Applying data such as direct labor, factory overhead, raw materials, and inventory balances facilitates precise computation for each entity.

Preparation of Manufacturing Statement for Randa Company

The manufacturing statement summarizes raw materials used, direct labor, factory overhead, and the total manufacturing costs to compute the cost of goods manufactured. Subtracting the ending work in process inventory from total manufacturing costs results in the cost of goods completed during the period.

Using provided balances such as raw materials, direct labor, factory supplies, indirect labor, repairs, and factory rent, the calculation includes summing factory overhead costs, then deriving the total manufacturing costs and the final cost of goods manufactured.

Preparation of Income Statement for Randa Company

The income statement begins with sales, subtracts the cost of goods sold (which comes from the manufacturing statement), and accounts for operating expenses, including selling, general, and administrative expenses. This process results in net income or loss, providing a clear picture of profitability.

Given that the cost of goods manufactured is $559,850, the calculation incorporates beginning and ending inventories to assure accuracy in determining gross profit and operating profit margins.

Cost Flow Computations in Manufacturing

The flowchart illustrates the movement of costs through raw materials, work in process, and finished goods inventories. Calculating the specific input amounts involves understanding how costs accumulate and transfer across production stages, such as raw material purchases, labor, and overhead to produce finished goods at a calculated cost.

The specified amounts (e.g., $37,550, $22,550, etc.) are derived from summing or subtracting the respective inventory and cost data, ensuring a detailed understanding of production costs.

Conclusion

In-depth knowledge of financial statement preparation—whether balance sheet sections, income statements, or manufacturing statements—is essential for financial analysis. Understanding inventory types, production costs, and cost flows enables accurate financial reporting and strategic decision-making in manufacturing and merchandising contexts. This knowledge supports stakeholders in assessing operational efficiency, cost management, and profitability, crucial for sustained business success.

References

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