Mazzel Company began operations on January 1, 2008, by issuing common stock for
ID: 2443917 • Letter: M
Question
Mazzel Company began operations on January 1, 2008, by issuing common stock for $33,000 cash. During 2008, Mazzel received $39,000 cash from revenue and incurred costs that required $66,000 of cash payments.
Required
Prepare an income statement, balance sheet, and statement of cash flows for Mazzel Company for 2008, under each of the following independent scenarios.
a. Mazzel is a promoter of rock concerts. The $66,000 was paid to provide a rock concert that produced the revenue.
b. Mazzel is in the car rental business. The $66,000 was paid to purchase automobiles. The automobiles were purchased on January 1, 2008, had four-year useful lives and no expected salvage value. Mazzel uses straight-line depreciation. The revenue was generated by leasing the automoblies.
c. Mazzel is a manufacturing company. The $66,000 was paid to purchase the following items.
(1) Paid $5,900 cash to purchase materials that were used to make products during the year.
(2) Paid $25,000 cash for wages of factory workers who made products during the year.
(3) Paid $2,100 cash for salaries of sales and administrative employees.
(4) Paid $33,000 cash to purchase manufacturing equipment. The equipment was used solely to make products. It had a three-year life and a $7,200 salvage value. The company uses straight-line depreciation.
(5) During 2008, Mazzel started and completed 2,000 units of product. The revenue was earned when Mazzel sold 1,300 units of product to its customers.
d. Refer to Requirement c. Could Mazzel determine the actual cost of making the 500th unit of product? How likely is it that the actual cost of the 500th unit of product was exactly the same as the cost of producing the 501st unit of product? Explain why management maybe more interested in average cost than in actual cost.
Explanation / Answer
Prepare an income statement, balance sheet, and statement of cash flows for Mazzel Company for 2008, under each of the following independent scenarios.
a. Mazzel is a promoter of rock concerts. The $66,000 was paid to provide a rock concert that produced the revenue.
Income Statement
================
Service Revenue $39,000
Less : Rock concert expenses $66,000
Net operating Loss $27,000
Balance Sheet
============
Assets
--------
Cash ($33,000 + $39,000 - $66,000) $6,000
Total Assets $6,000
Liabilities
------------
Shareholders' Equity
------------------------
Common Stock $33,000
Retained Earnings ($27,000)
Total Liabilities &
Shareholders' Equity $6,000
Statement of cash flow
===================
Net Operating Loss ($27,000)
Cash from Financial activities
=========================
Common Stock issued $33,000
Net increase/(decrease) in cash $6,000
___________________________________________________
b. Mazzel is in the car rental business. The $66,000 was paid to purchase automobiles. The automobiles were purchased on January 1, 2008, had four-year useful lives and no expected salvage value. Mazzel uses straight-line depreciation. The revenue was generated by leasing the automoblies.
Income Statement
================
Service Revenue $39,000
Less : Depreciation 66,000/4 $16,500
Net operating Income $22,500
Balance Sheet
============
Assets
--------
Cash ($33,000 + $39,000 - $66,000) $6,000
Automobile $66,000
Less : Accu. Dep. $16,500 $49,500
Total Assets $55,500
Liabilities
------------
Shareholders' Equity
------------------------
Common Stock $33,000
Retained Earnings $22,500
Total Liabilities &
Shareholders' Equity $55,500
Statement of cash flow
===================
Net Operating Income $22,500
Depreciation $16,500
Cash from Financial activities
=========================
Common Stock issued $33,000
Cash from Investing activities ($66,000)
Net increase/(decrease) in cash $6,000
_____________________________________________________
c.
Income Statement
================
Sales Revenue $39,000
Less : Cost of goods sold
Materials $5,900
Labor $25,000
Depr. $8,600
Total $39,500
Less : Ending
Inventory
39,500x700/2000 $13,825 $25,675
Gross Profit $13,325
Salaries $2,100
Net operating Income $11,225
Balance Sheet
============
Assets
--------
Cash ($33,000 + $39,000 - $66,000) $6,000
Inventory $13,825
Equipment $33,000
Less : Accu. Dep. $8,600 $24,400
Total Assets $44,225
Liabilities
------------
Shareholders' Equity
------------------------
Common Stock $33,000
Retained Earnings $11,225
Total Liabilities &
Shareholders' Equity $44,225
Statement of cash flow
===================
Net Operating Income $11,225
Depreciation $8,600
Increase in Inventory ($13,825)
Cash from Financial activities
=========================
Common Stock issued $33,000
Cash from Investing activities ($33,000)
Net increase/(decrease) in cash $6,000