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Inventories section of the balance sheet

As a financial consultant, you have to interact with the accounts departments of manufacturing and merchandising companies, Outdoor Equipment Company (OEC) and Mountain Supplies, Inc. (MSI), both into selling tents, OEC purchases its tents from a manufacturer for $90 each and sells them for $120. It purchased 10,000 tents in 20X1.

a. The balance sheet for December 31, 20X1, for OEC
b. The balance sheet for December 31, 20X1, for MSI
c. Income statements for the year 20X1 for OEC and MSI

MSI produces its own tents. In 20X1 MSI produced 10,000 tents. Costs were as follows:

Direct materials purchased $535,000
Direct materials used $520,000
Direct labor 260,000
Indirect manufacturing:
Depreciation $40,000
Indirect labor 50,000
Other 30,000 120,000
Total cost of production $900,000

Assume that MSI had no beginning inventory of direct materials. There was no beginning inventory of finished tents, but ending inventory consisted of 1,000 finished tents. Ending work-in-process inventory was negligible.

Each company sold 9,000 tents for $1,080,000 in 20X1 and incurred the following selling and administrative costs:

Sales salaries and commisions $90,000
Depreciation on retail store 30,000
Advertising 20,000
Other 10,000
Total selling and administrative cost $150,000

Prepare the inventories section of the balance sheet for December 31, 20X1, for OEC & MSI.

Prepare an income statement for the year 20X1 for OEC & MSI.

Summarize the differences between the financial statements of OEC, a merchandiser, and MSI, a manufacturer.

Solution Preview

As a financial consultant, you have to interact with the accounts departments of manufacturing and merchandising companies, Outdoor Equipment Company (OEC) and Mountain Supplies, Inc. (MSI), both into selling tents, OEC purchases its tents from a manufacturer for $90 each and sells them for $120. It purchased 10,000 tents in 20X1.

a. The balance sheet for December 31, 20X1, for OEC
b. The balance sheet for December 31, 20X1, for MSI
c. Income statements for the year 20X1 for OEC and MSI

MSI produces its own ...

Solution Summary

This provides the steps to prepare the inventories section of the balance sheet and Income statement and also tell the differences between the financial statements of OEC, a merchandiser, and MSI, a manufacturer.

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