The following transactions pertain to 2018, the first-year operations of gibson company. all inventory was started and completed during 2018. assume that all transactions are cash transactions.

acquired $12,000 cash by issuing common stock.

paid $4,700 for materials used to produce inventory.
paid $2,400 to production workers.
paid $900 rental fee for production equipment.
paid $350 to administrative employees.
paid $400 rental fee for administrative office equipment.
produced 400 units of inventory of which 360 units were sold at a price of $25 each.
required
prepare an income statement and a balance sheet in accordance with gaap.

Explanation:

The preparation is shown below:

                                         Gibson Company

                                        Income statement

                                        For the year 2018

Particulars                                                    Amount

Sales (360 units × $25)                               $9,000

Less: Cost of goods sold                           -$7,200

Gross profit                                                 $1,800

Less:  rental fee                                          -$400

Less: administrative employees                -$350

Net income                                                  $1,050

The computation of cost of goods sold would be

= Materials used to produce inventory + production workers + rental fee for production equipment

= $4,700 + $2,400 + $900

= $8,000

So, the cost of goods sold would be

= $8,000 × 360 units ÷ 400 units

= 7,200

And, the ending balance of finished goods inventory would be

= $8,000 - $7,200

= $800

                                        Gibson Company

                                        Balance sheet

                                        For the year 2018

Liabilities                           Amount      Liabilities                           Amount

Common stock                $12,000       Cash                                  $12,250

Add: Retained earning   $1,050          Finished goods inventory $800

Total                                  $13,050      Total                                  $13,050  

The cash balance would be

Cash flow from Operating activities  

Sales                          $9,000

Less: cost of goods sold -$7,200

Less: admin expenses     -$750

Less: Increase in inventory -$800

Net Cash flow from Operating activities -$250

Cash flow from Investing activities  $0

Net Cash flow from Investing activities $0

Cash flow from Financing activities  

Issuance of common  stock $12,000

Net Cash flow from Financing activities $12,000

The computation of the cash balance

Net Cash flow from Operating activities $250

Net Cash flow from Investing activities $0

Net Cash flow from Financing activities $12,000

Cash balance                                            $12,250

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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