Part One: In 2009, Hannah Summit opened Hannah’s Pets, a small retail shop selling pet supplies. On December 31, 2009, her accounting records show the following:

Inventory on December 31, 2009............................................................ $10,250

Inventory on January 1,2009 ................................................................. 15,000

Sales revenue........................................................................................... 54,000

Utilities for shop...................................................................................... 2,450

Rent for shop.......................................................................................... 4,000

Sales commissions................................................................................... 2,300

Purchases of merchandise........................................................................ 27,000

Requirement

Prepare an income statement for Hannah’s Pets, a merchandiser, for the year ended

December 31, 2009.

Part Two: Hannah’s Pets was so successful that Hannah decided to manufacture her own brand of pet toys—Best Friends Manufacturing. At the end of December 2010, her accounting records show the following:

Work in process inventory, December 31, 2010.................................... $ 720

Finished goods inventory, December 31, 2009...................................... 0

Finished goods inventory, December 31, 2010...................................... 5,700

Sales revenue......................................................................................... 105,000

Customer service hotline expense.......................................................... 1,000

Utilities for plant................................................................................... 4,600

Delivery expense ................................................................................... 1,500

Sales salaries expense ............................................................................ 5,000

Plant janitorial services.......................................................................... 1,250

Direct labour......................................................................................... 18,300

Direct material purchases...................................................................... 31,000

Rent on manufacturing plant ................................................................ 9,000

Raw materials inventory, December 31, 2009...................................... 13,500

Raw materials inventory, December 31, 2010....................................... 9,275

Work in process inventory, December 31, 2009.................................... 0

Requirements

1. Prepare a schedule of cost of goods manufactured for Best Friends Manufacturing for the year ended December 31, 2010.

2. Prepare an income statement for Best Friends Manufacturing for the year ended December 31, 2010.

3. How does the format of the income statement for Best Friends Manufacturing differ from the income statement of Hannah’s Pets?

Part Three: Show the ending inventories that would appear on these balance sheets:

1. Hannah’s Pets at December 31, 2009

2. Best Friends Manufacturing at December 31, 2010