Question

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 $76,000 of manufacturing overhead for an estimated activity level of $40,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows:

Raw materials	$	10,800
Work in process	$	4,900
Finished goods	$	8,800

During the year, the following transactions were completed:

1. Raw materials purchased for cash, $ 162,000.
2. Raw materials used in production, $143,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect).
3. Cash paid to employees as follows:

Direct labor	$	154,000
Indirect labor	$	217,500
Sales commissions	$	26,000
Administrative salaries	$	49,000

4. Cash paid for rent during the year was $18,200 ($13,500 of this amount related to factory operations, and the remainder related to selling and administrative activities).
5. Cash paid for utility costs in the factory, $11,000.
6. Cash paid for advertising, $14,000.
7. 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.)
8. Manufacturing overhead cost was applied to jobs, $ ? .
9. Goods that had cost $228,000 to manufacture according to their job cost sheets were completed.
10. Sales for the year (all paid in cash) totaled $511,000. The total cost to manufacture these goods according to their job cost sheets was $216,000.

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).

3A. Is Manufacturing Overhead underapplied or overapplied for the year?

3B. 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.

-Journal entry worksheet:

1. Raw materials purchased for cash, $162,000.
2. Raw materials used in production, $143,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect)
3. Cash paid to employees as follows: Direct labor $154,000 Indirect labor $217,500 Sales commissions $26,000 Administrative salaries $49,000
4. Cash paid for rent during the year was $18,200 ($13,500 of this amount related to factory operations, and the remainder related to selling and administrative activities).
5. Cash paid for utility costs in the factory, $11,000.
6. Cash paid for advertising, $14,000.
7. 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.)
8. Manufacturing overhead cost was applied to jobs, $?.
9. Goods that had cost $228,000 to manufacture according to their job cost sheets were completed.
10. Sales for the year (all paid in cash) totaled $511,000.
11. The total cost to manufacture these goods according to their job cost sheets was $216,000.

-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). (Do not round intermediate calculations.)

	Raw Materials Work in Process Beg. Bal.       Beg. Bal. End. Bal. End. Bal. Finished Goods Manufacturing Overhead Beg. Bal. Beg. Bal. End. Bal. Cost of Goods Sold End. Bal. Beg. Bal. End. Bal.

-Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet: Record the entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

-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.)

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.)

	Gold Nest Company Income Statement For the Year Ended    0 Selling and administrative expenses: 0 $0

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 $76,000 of manufacturing overhead for an estimated activity level of $40,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials Work in process Finished goods $10,800 $ 4,900 $ 8,800 During the year, the following transactions were completed: a. Raw materials purchased for cash, $ 162,000. b. Raw materials used in production, $143,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect). C. Cash paid to employees as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ 154,000 $ 217,500 $ 26,000 $ 49,000 d. Cash paid for rent during the year was $18,200 ($13,500 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Cash paid for utility costs in the factory, $11,000. f. Cash paid for advertising, $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. Manufacturing overhead cost was applied to jobs, $_? i. Goods that had cost $228,000 to manufacture according to their job cost sheets were completed. j. Sales for the year (all paid in cash) totaled $511,000. The total cost to manufacture these goods according to their job cost sheets was $216,000.

Answer 1

credit Part 1 Transaction No gli debit 228,000 No credit account title Raw material inventory Account payable account title finished goods inventory work in process inventory debit 162,000 228,000 162,000 j(1) 511,000 work in process inventory manufacturing overhead Raw material inventory 124,000 19,000 cash sales 511,000 143,000 (2) 216,000 Cost of goods sold finished goods inventory 216,000 work in process inventory manufacturing overhead salaries commission expense administrative salaries expense cash 154,000 217,500 26,000 49,000 446,500 1.90 *predetermined overhead rate per direct labor dollar 76000/40000 13,500 Manufacturing overhead Rent expense cash 4,700 18,200 11,000 Manufacturing overhead Accounts payable 11,000 14,000 Advertisement expense Accounts payable 14,000 manufacturing overhead depreciation expense accumulated depreciation 17,000 4,000 21,000 292,600 292,600 work in process inventory manufacturing overhead (154000*1.90) Sheet433 Sheet434 Sheet435 + Sheet432 Sheet436 Sheet437 Sheet438 Sheet439 Sheet440 I I I A ENG 15:40 l T0 UK 16/02/2020

Part 2. T accounts Raw Materials inventory beg bal 10,800 143,000b a 162,000 end bal 29,800 work in in Process inventory beg bal 4,900 228,000 124,000 154,000 292,600 end bal 347,500 3A Manufacturing Overhead overapplied = $14600 511,000 201,400 309,600 3B credit Finished Goods inventory beg bal 8,800 216,000 j 228,000 account title Manufacturing overhead Cost of goods sold debit 14,600 4.Income Statement sales Less: COGS =21600-14600 Gross margin Less: selling and administrative expesne Sales commissions Administrative salaries Rent expense advertisement expense Depreciation expense Total expense net income 14,600 26,000 49,000 4,700 14,000 4,000 end bal 20,800 97,700 211,900 Cost of Goods Sold 216,000 end bal 216,000 manufacturing ovehead 19,000 292,600h 217,500 13,500 11,000 17,000 end bal 14,600 Sheet432 Sheet433 Sheet434 Sheet435 Sheet436 Sheet437 / Sheet438 Sheet439 Sheet440 I I