The Slattery Company was formed on January 1, 2007 to build a single product. The company issued

Question:

The Slattery Company was formed on January 1, 2007 to build a single product. The company issued no-par common stock on that date for $300,000 cash. The product costs $20 to make, all of which is paid in cash at the time of production. The company sells each unit of the product for $35 on credit and incurs sales commissions per unit of $5 cash. In 2007 the company produced 10,000 units, shipped 9,000 units, and received payment for 8,000 units.

Required

1. Prepare the 2007 income statement and ending balance sheet under each of the following methods:

a. Revenue recognition at the time of sale (shipment)

b. Revenue recognition during production

c. Revenue recognition at the time of cash receipt

2. Which method provides the most useful information to users? Under what circumstances would the other methods provide more useful information?

3. In 2008 the company produced 15,000 units, shipped 16,000 units, and received payment for 17,000 units. What conclusion can you make about the balance in Retained Earnings on December 31, 2008 for each method of revenue recognition?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...