Question

Problem 3-16 Comprehensive Problem (LO3-1, LO3-2, LO3-4) Gold Nest Company of Guandong, China, is a family-owned enterprise that makes birdcages for the South China market. The company sells its birdcages through an extensive network of street vendors who receive commissions on their sales. The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $85,500 of manufacturing overhead for an estimated activity level of $45,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials Work in process Finished goods $10,300 $4,100 $ 8,500 During the year, the following transactions were completed a. Raw materials purchased on account, $ 165,000. b. Raw materials used in production, $149,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect). c Costs for employee services were incurred as follows: Direct labor Indirect labor Sales cossions strative Lari $ 272,000 $ 245, 100 $26.000 $ 40,000 A d. Rent for the year was $18,300 ($13,600 of this amount related to factory operations, and the remainder related to selling and administrative activities) e Utility costs incurred in the factory, $13,000 f. Advertising costs incurred, $14,000. g. Depreciation recorded on equipment, $21,000. ($17,000 of this amount related to equipment used in factory operations, the remaining $4,000 related to equipment used in selling and administrative activities.) h. Record the manufacturing overhead cost applied to jobs. i. Goods that had cost $227,000 to manufacture according to their job cost sheets were completed. Sales for the year (all paid in cash) totaled $513,000. The total cost to manufacture these goods according to their job cost sheets was $217,000. Required: 1. Prepare journal entries to record the transactions for the year. 2. Prepare T accounts for each inventory account Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don't forget to enter the beginning balances in your inventory accounts). SA Is Manufacturing Overhead underapplied or overapplied for the year? 33. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold 4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.

Answer 1

32 1 33 Prepare journal entries to record the transactions for the year. Credit 34 35 a 36 37 38 b b Account title & explanation Raw Material inventory Cash Debit 165,000 165,000 Work in Process Inventory Manufacturing Overhead Raw Material inventory 124,000 25,000 149,000 41 42 c 43 44 45 46 47 48 d 49 Work in Process Inventory Manufacturing Overhead Sales Commission Adminstrative salaries Cash 172,000 245,100 26,000 48,000 491,100 Manufacturing Overhead Rent Expense Cash 13,600 4,700 18,300 51 52 e 13,000 Manufacturing Overhead Cash 13,000

55 f 14,000 Advertising expense Cash 14,000 56 57 58 g Manufacturing Overhead Depreciation expense Accumulated depreciation 17,000 4,000 59 60 21,000 61 62 h 326,800 Work in Process Inventory (172000 *1.9) Manufacturing Overhead applied 85500 45000 326,800 64 1.9 65 Finished goods inventory Work in Process Inventory 227,000 227,000 Cash 513,000 Sales 513,000 217,000 Cost of goods sold Finished goods inventory 217,000

75 Prepare t-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Raw material inventory A/C 10,300 149,000 165,000 26,300 Work in process inventory A/C 4,100 227,000 124,000 172,000 326,800 399,900 PPFPPS * * * * * * * * 5 * * a a a Finished goods Inventory A/C 8,500 217,000 227,000 Manufacturing Overhead A/C 25,000 326,800 245, 100 13,600 13,000 17,000 18,500 13,100 Overapplied Cost of goods sold A/C 217,000 13,100 203,900 Sales revenue A/C 513,000 513,000

102 100 Is Manufacturing Overhead underapplied or overapplied for the year? 101 Particulars Amount $ 103 Actual overheads 313,700 Applied Overheads 326,800 105 Overapplied Overheads 13,100 106 107 110 108 Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 109 Account title & explanation Debit Credit 111 112 Manufacturing Overheads 13,100 113 Cost of goods Sold 13,100 114

115 Prepare an Income Statement 116 117 118 Income Statement Details $ Amount $ Particulars 513,000 203,900 309,100 122 124 Sales less cost of Goods sold Gross Profit less selling & adminstrative Expenses Sales Commission Adminstrative salaries Rent Expense Advertising expense Depreciation expense Net Income 125 26,000 48,000 4,700 14,000 4,000 121 128 96,700 212,400 129 130 131