Packer Company began operations on January 1, 2018, by issuing common stock for $120,000 cash. During 2010, Packer received $98,000 cash from revenue and incurred costs that required $90,000 of cash payments.
Required
Prepare a GAAP-based income statement and balance sheet for Packer Company for 2018, under each of the following independent scenarios:
a. Packer is an employment agency. The $90,000 was paid for employee salaries and advertising.
b. Packer is a trucking company. The $90,000 was paid to purchase two trucks. The trucks were purchased on January 1, 2018, and had five-year useful lives and no expected salvage value.
Packer uses straight-line depreciation.
c. Packer is a manufacturing company. The $90,000 was paid to purchase the following items:
(1) Paid $18,000 cash to purchase materials used to make products during the year.
(2) Paid $22,000 cash for wages to production workers who make products during the year.
(3) Paid $2,000 cash for salaries of sales and administrative employees.
(4) Paid $48,000 cash to purchase manufacturing equipment. The equipment was used solely for the purpose of making products. It had a four-year life and a $8,000 salvage value. The company uses straight-line depreciation.
(5) During 2018, Packer started and completed 2,500 units of product. The revenue was earned when Packer sold 2,000 units of product to its customers.
d. Refer to Requirement c. Could Packer determine the actual cost of making the 960th unit of product? How likely is it that the actual cost of the 960th unit of product was exactly the same as the cost of producing the 961st unit of product? Explain why management may be more interested in average cost than in actual cost.