Max is having a problem understanding the financial statements.He believes that his administrative assistant has made some errors in preparing the income statement.Evaluate the following transactions and the income statement prepared by the administrative assistant.Prepare a corrected income statement using U.S.GAAP.
a.Max's Catering earned $10,000 in catering business during June.
b.Customers paid $2,500 in deposits for parties to be catered in July.
c.The business paid $500 for June rent.
d.The business paid the chef $5,000 in wages for June.
e.The business spent $3,300 on food,spices,and other ingredients,and used $1,500 of them during June.
Definitions:
Fixed Cost
Costs that do not vary with the level of output or sales, remaining constant regardless of the business activity level, such as rent and salaries.
Period Cost
Expenditures that are not directly tied to the production process and are expensed in the period in which they are incurred.
Product Cost
The total expense incurred to produce and make ready for sale a product, including direct materials, labor, and overhead costs.
Opportunity Cost
The cost of foregoing the next best alternative when making a decision.
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