The following events took place for Mercury Shoe Company during May 2006, the first month of operations as a producer of athletic shoes:
• Purchased $155,300 of materials.
• Used $145,800 of direct materials in production.
• Incurred $94,500 of direct labor wages.
• Applied factory overhead at a rate of 75% of direct labor cost.
• Transferred $304,300 of work in process to finished goods.
• Sold goods with a cost of $300,100.
• Sold goods for $510,000.
• Incurred $116,000 of selling expenses.
• Incurred $48,400 of administrative expenses.
a. Prepare the May income statement for Mercury Shoe Company. Assume that Mercury Shoe uses the perpetual inventory method.
b. Determine the inventory balances at the end of the first month of operations.