Running head: E1-17 1E1-17ACC497E1-17 2E1-17Part ARaw MaterialsSeptember 30, 2011 3,150(45,000 – 41,850 (Purchase cost minus cost removed to work in process))Work in ProcessSeptember 30, 2011 4,410(41,400 – 37,260 (Cost pulled from raw materials minus cars completed and moved to lot))Finished GoodsSeptember 30,2011 9,315(37,260 – 27,945 (Cars finished and moved to lot minus cars sold))Cost of Goods SoldSeptember 30, 2011 27,945(This the amount of the 75% sold out of the 90% that was finished))Selling ExpenseSeptember 30, 2011 450(This is the cost of the 50 headlamps used on company vehicles)Part BTo: Chief AccountantFrom: StudentSubject: Income Statement and Balance Sheet Account PlacementDate: September 30, 2011Manufacturing and merchandising companies show some differences in how accounts are reported in the income statement and balance sheet. Therefore, it is important to understand the proper placement and reason for placement in a manufacturing company’s inventory.The balance sheet covers the current inventory for the manufacturing company. Inventory is located under current assets. The inventory in the balance sheet for manufacturing is broken-down into three sections; finished goods, work in process, and raw materials. The amounts in these accounts show only the current inventory not the beginning amounts. The reason for the breakdown is finished goods is similar to merchandise inventory meaning it is ready to sell. The work in process is working towards a completed selling unit, while raw materials is inventory ready to be used but is in beginning inventory mode. When raw materials run low the company replenishes this to continue to supply parts for production.E1-17 3The income statement represents the revenue and expenses for the company. In this area the use of the headlamps for employee vehicles is shown as an expense, the cost of doing business. Thus, the selling expenses are on the income statement. The finished goods are reported here because it is considered part of the revenue earnings. The company needs the finished goods inventory total to deduct the cost of goods sold in determining profit or loss.This is a breakdown of the manufacturing financial statements and the reason in basis and similarto merchandising companies. In essence it is the determination of the company’s earnings and what is owned. If you have any questions please contact me at [email protected] or call meat 214-744-2233 ext.
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