The McClean Manufacturing Company Started the Production of K1 (Its

question 33

Essay

The McClean Manufacturing Company started the production of K1 (its main product)and S2 (its byproduct)on January 2,2010.During 2010,7,500 units of K1 and 1,500 units of S2 were produced.In 2010,6,000 units of K1 and 1,000 units of S2 were sold at $57.00 and $1.10 per unit,respectively.Production was halted at the end of 2010 and the inventory was sold in 2011 at the normal selling prices.The joint production costs were $240,000 and are entirely avoidable.The separable costs to produce K1 were $2.60 per unit and to produce S2 were $.45 per unit.Operating expenses were $60,000 in 2010 and $12,000 in 2011.
Required:
a.Prepare an income statement for 2010 and 2011 assuming the "other revenue" method of accounting for byproducts is used.
b.Prepare an income statement for 2010 and 2011,assuming the "cost reduction" method of accounting for byproducts is used.

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Definitions:

Noncurrent Monetary Liabilities

Long-term financial obligations that are not due within the next 12 months, such as bonds payable or long-term loans.

Present Value

The current value of future money or cash flows, determined by applying a specific rate of return.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Stated Rate

The interest rate expressed in the terms of a loan or bond agreement, not necessarily reflecting the effective interest rate after considering fees or compounding.