Fanning Company started year 1 with $135,000 in its cash and common stock accounts. During year 1, Fanning paid $101,250 cash for employee compensation and $31,050 cash for materials. Required Determine the total amount of assets and the amount of expense shown on the year 1 financial statements assuming Fanning used the labor and materials to make 1,500 chairs. Further, assume that Fanning sold 1,200 of the chairs it made. State the name(s) of the expense account(s) shown on the income statement. Determine the total amount of assets and the amount of expense shown on the year 1 financial statements assuming Fanning used the labor and materials to provide dental cleaning services to 500 patients. State the name(s) of the expense account(s) shown on the income statement.

Fanning Company

A) Total amount of assets and total amount of expense & names of expenses in Financial Statements, assuming Fanning used labor and materials to make 1,500 chairs and sold 1,200:

i) Total Assets =

Cash = beginning cash balance less expenses plus revenue = $(135,000 - 101,250 - 31,050 + 105,840) = $108,540

Inventory $(132,300 - 105,840) = $36,460

Total = $135,000

ii) Names and Total Amount of Expenses on Income Statement:

a) Manufacturing Wages = $101.250

b) Direct Materials = $31,050

Total Production Costs = $132,300

Less Cost of Sales (1,200 x ($132,300/1,500)) = $105,840

Closing Inventory ((1,500 - 1,200) x ($132,300/1,500)) = $26,460

B) Total amount of assets and total amount of expense & names of expenses in Financial Statements, assuming Fanning used labor and materials to provide dental cleaning services to 500 patients.

i) Total Assets =

Cash = beginning cash balance less expenses plus revenue = $(135,000 - 101,250 - 31,050 + 132,300) = $135,000

Total = $135,000

ii) Names and Total Amount of Expenses on Income Statement:

a) Service Materials = $31,050

b) Service Labour = $101,250

Explanation:

a) For a manufacturing company, there is inventory of unsold finished goods to account for.  The inventory value is the difference between the cost of goods sold and the cost of goods available for sale.

b) For a service company, there is no much inventory to account for, especially in this case.  The whole expenses were used for rendering dental cleaning services for 500 patients.

c) In this example, we have assumed that revenue was equal to the cost of sales.  There was no profit to be calculated.  So it is assumed that the cash balance increased by the amount of cost of sales/revenue.

d) The total assets did not change because at the end of the activities no profit value was made.  The assets would have increased or decreased if some profits or losses were recorded in both cases.

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