The Carson Company Was Started at the Beginning of the Current

question 65

Essay

The Carson Company was started at the beginning of the current year when it acquired $20,000 by issuing common stock to its owners. During the year, the company incurred the following cash costs: $$\begin{array} { |l | r| } \hline\text { Direct material costs } & \$ 10,000 \\\hline \text { Direct labor costs } & 8,000 \\\hline \text { Overhead costs } & 4,000 \\\hline \text { Selling and administrative costs } & 2,000\\\hline\end{array}$$
The company produced 5,000 units of product and sold 4,500 units. The average selling price was $7.00 per unit. The accountant who prepared the firm's financial statements misclassified the selling and administrative costs as product costs.
Required:
Demonstrate the impact of the error on the company's financial statements by completing the following schedule. $$\begin{array} { | l | l | l | } \hline & \text { Seenario 1: With the error } & \text { Seenario 2: Without the error } \\\hline \text { Income stabement: } & & \\\hline \text { Revenuo } & & \\\hline \text { Less: Cest of goods sold } & \\\hline \text { Gross margin } & \\\hline \begin{array} { l } \text { Less: Selling general, and } \\\text { administrative expenses }\end{array} & \\\hline \text { Net income } & & \\\hline & & \\\hline \text { Balance sheet: } & & \\\hline \text { Assets } & & \\\hline \text { Cash } & & \\\hline \text { Inventory } & & \\\hline \text { Total assets } & & \\\hline \text { Equity } & \\\hline \text { Common stock } & \\\hline \text { Retained earnings } & \\\hline \text { Total equity } & \\\hline\end{array}$$

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Definitions:

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