Question

Problem 3-15 Journal Entries; T-Accounts; Financial Statements [LO3-1, LO3-2, LO3-3, LO3-4) Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labor- hours. Its predetermined overhead rate was based on a cost formula that estimated $373,700 of manufacturing overhead for an estimated allocation base of 1,010 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $255,000. b. Raw materials used in production (all direct materials), $240,000. c. Utility bills incurred on account, $70,000 (95% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (1,885 hours) Indirect labor Selling and administrative salaries $285, see $ 101,00 $ 165,000 e. Maintenance costs incurred on account in the factory, $65,000 f. Advertising costs incurred on account, $147,000. g. Depreciation was recorded for the year, $83,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost Incurred on account, $108,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities) 1. Manufacturing overhead cost was applied to jobs, $_?_ J. Cost of goods manufactured for the year, $880,000. k. Sales for the year (all on account) totaled $1,750,000. These goods cost $910,000 according to their job cost sheets. The balances in the Inventory accounts at the beginning of the year were: Raw Materials Work in Process Finished Goods $41.899 $ 32,000 $ 71,000 Required: 1. Prepare Journal entries to record the preceding transactions. 2. Post your entries to T-accounts. (Don't forget to enter the beginning Inventory balances above.) 3. Prepare a schedule of cost of goods manufactured. 4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 4B. Prepare a schedule of cost of goods sold. 5. Prepare an Income statement for the year.

Answer 1

Answer-

Predetermined overhead rate =$373,700/ 1,010 direct labor-hours= $370

1. Journal entries

No	Account Titles and Explanation	Debit	Credit
a	Raw Material Inventory	255000
	Accounts Payable		255000
b	Work in Process Inventory	240000
	Raw Material Inventory		240000
c	Manufacturing Overhead	66500
	Utility Expenses	3500
	Accounts Payable		70000
d	Work in Process Inventory	285000
	Manufacturing Overhead	101000
	Salaries Expenses	165000
	Wages Payable		551000
e	Manufacturing Overhead	65000
	Accounts Payable		65000
f	Advertisement Expenses	147000
	Accounts Payable		147000
g	Manufacturing Overhead	66400
	Depreciation Expenses	16600
	Accumulated Depreciation		83000
h)	Manufacturing Overhead	91800
	Rent Expenses	16200
	Accounts Payable		108000
i	Work in Process Inventory ($370*1,085 hrs)	401450
	Manufacturing Overhead		401450
J	Finished Good Inventory	880000
	Work in Process Inventory		880000
k	Accounts Receivable	1,750,000
	Sale		1,750,000
	(To record the sale )
	Cost of Good Sold	910000
	Finished Good Inventory		910000
	(To record the cost of the sale)

2. Posting to T-accounts

Raw Material Inventory					Work in process Inventory					Accounts Payable
Beg	41000	240000	b		Beg	32000	880000	j				255000	a
a	255000				b	240000						70000	c
	296000	240000			d	285000						65000	e
Bal	56000				i	401450						147000	f
												108000	h
Finished Good Inventory						958450	880000
Beg	71000	910000	k		Bal	78450						645000
j	880000
					Manufacturing Overhead
	951000	910000			c	66500	401450	i
Bal	41000				d	101000				Cost of Good Sold
					e	65000				k	910000
Utility Expenses					g	66400
c	3500				h	91800					910000
						390,700	401450
	3500						10750	Bal		Wages Payable
												551,000	d
Advertisement Expenses					Salaries Expenses
f	147000				d	165000						551,000
	147000					165000				Accumulated Depreciation
												83000	g
Rent Expenses					Depreciation Expenses
h	16200				g	16600						83000
	16200					16600				Sale
												1,750,000	k
					Account receivable
					k	1,750,000						1,750,000
						1,750,000

3. Schedule of cost of goods manufactured

Direct Material
	Raw Material Inventory:Beginning	41,000
	Add: Purchases of Raw Material	255,000
	Raw Material Available	296,000
	Deduct: Raw Material Inventory:Ending	56,000
Raw Material Used in production			240,000
Direct Labor			285,000
Manufacturing Overhead applied to Work in process			401,450
Total Manufacturing Cost			926,450
Add:Beginning Work in process Inventory			32,000
			958,450
Deduct: Ending Work in process Inventory			78,450
	Cost of Good Manufactured		880,000

4.Journal Entry

Account Titles and Explanation	Debit	Credit
Manufacturing Overhead	10,750
Cost of Good Sold		10,750

The schedules of cost of goods sold
Finished Goods Inventory Beginning		71,000
Add: Cost of Good Manufactured		880,000
Cost of Goods Available for sale		951,000
Deduct: Finished Goods Inventory Ending		41,000
Unadjusted Cost of Good Sold		910,000
Less: Overapplied Overhead		10,750
Adjusted Cost of Good Sold		899,250

5.

The Income Statement
Sales			1,750,000
Cost of Good sold			899,250
Gross Margin			850,750
Selling and Administrative Expenses
	Utility Expenses	3,500
	Advertisement Expenses	147000
	Salary Expenses	165,000
	Depreciation Expenses	16,600
	Rent Expenses	16,200	348,300
Net Income			502,450