Question

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Practice Problem 1 Journal Entries, T-Accounts, Disposition of Overhead, Income Statement At the beginning of the year, Polson Manufacturing Company had the following balances in its inventory accounts: Raw Materials S170,000 Work in Process 20,000 Finished Goods 45,000 Polson applies overhead on the basis of 150 percent of direct labor cost. During the year Polson experienced transactions as described below. a. Direct materials purchased, $280,000. b. Direct materials issued, $300,000. c. Indirect materials issued, $82,000. d. Labor costs: $110,0 Direct labor 00 Indirect labor 60,000 Selling & adm 70,000 e. Factory insurance expired, $5,000. f. Advertising costs, $30,000. g. Factory rent, $24,000. h. Depreciation on office equipment, $10,000. i. Miscellaneous factory costs, $7,850. j. Utilities (70 percent factory, 30 percent office), $10,000. k. Sales totaled $983,000. Ending balances in the inventory accounts were: Raw Materials ???? Work in Process 30,000 20,000 Finished Goods REQUIRED: 1. Prepare journal entries for the above transactions. 2. Post the journal entries relating to manufacturing costs to the appropriate T- accounts.

Answer 1

Answer-1:

Date	Account Title	Debit	Credit
a	Raw material inventory	$2,80,000
	Account payable		$ 2,80,000
b	Work in process inventory	3,00,000
	Raw material inventory		3,00,000
c	Manufacturing overhead	82,000
	Raw material inventory		82,000
d	Work in process inventory	1,10,000
	Manufacturing overhead	60,000
	Selling and administration overhead	70,000
	Salaries and wages payable		2,40,000
e	Manufacturing overhead	5,000
	Prepaid insurance		5,000
f	Advertising cost	30,000
	Account payable		30,000
g	Manufacturing overhead	24,000
	Account payable		24,000
h	Depreciation expense	10,000
	Accumulated depreciation		10,000
i	Manufacturing overhead	7,850
	Account payable		7,850
j	Manufacturing overhead	7,000
	Utilities expense	3,000
	Account payable		10,000
k	Account receivable	9,83,000
	Sales		9,83,000

	Work in process inventory (110,000 * 150%)	1,65,000
	Manufacturing overhead		1,65,000
	(manufacturing overhead applied)

Answer-2:

Raw material inventory beg 170000 6 300000 a 280000 C 82000 beg b Account payable 280000 30000 24000 7850 10000 W-I-P Inventory 20000 565000 300000 110000 165000 30000 68000 Selling & Admn OH 70000 Salaries & wages payable 240000 d 0 0 Manufacturing overhead 82000 165000 60000 5000 24000 7850 7000 20850 60 - Prepaid insurance 5000 Advertising cost 30000 Depreciation expense 10000 h Accumulated Depreciation 10000 Utilities expense 3000 Account receivable 983000 k Sales k Cost of goods sold 590000 983000 Finished goods inventory Beg 45000 590000 565000 20000

Answer-3:

Notice that the balance in manufacturing overhead account is debit. It means overhead is under-applied. The following journal entry would dispose it off to cost of goods sold:

Cost of goods sold-Dr.	20,850
Manufacturing overhead–Cr.		20,850