The Carson Company Was Started at the Beginning of the Current

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. $\begin{array}{c}\begin{array}{|l|}\hline \\\hline \text { Income statement: } \\\hline \text { Revenue } \\\hline \text { Less: Cost of goods sold } \\\hline \text { Gross margin } \\\hline \text { Less: Selling, general, and } \\\text { administrative expenses } \\\hline \text { Net income } \\\hline \text { Balance sheet: } \\\hline \text { Assets } \\\hline \text { Cash } \\\hline \text { Inventory } \\\hline \text { Total assets } \\\hline \text { Equity } \\\hline \text { Common stock } \\\hline \text { Retained earnings } \\\hline \text { Total equity }\\\hline \end{array}\begin{array}{l|}\hline\text { Scenario 1: With the error }\\\hline\\\hline\\\hline\\\hline\\\hline\\\\\hline\\\hline\\\hline\\\hline\\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \end{array}\begin{array}{l|}\hline\text { Scenario 2: Without the error }\\\hline\\\hline\\\hline\\\hline\\\hline\\\\\hline\\\hline\\\hline\\\hline\\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \\\hline \end{array} \end{array}$