EXERCISE 2-13 (15 MINUTES)

1. No distinction has been made between period expenses and product

costs on the income statement filed by the company’s accountant. Prod-

uct costs (e.g., direct materials, direct labor, and manufacturing over-

head) should be assigned to inventory accounts and flow through to the

income statement as cost of goods sold only when finished products are

sold. Since there were ending inventories, some of the product costs

should appear on the balance sheet as assets rather than on the income

statement as expenses.