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 $349.800 of manufacturing overhead for an estimated allocation base of 1.060 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $230,000 b. Raw materials used in production (all direct materials). $215.000. c. Utility bills incurred on account, $65.000 (85% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (1,135 hours) Indirect labor Selling and administrative salaries $ 260,000 $ 96,000 $ 140,000 e. Maintenance costs incurred on account in the factory, $60.000 f. Advertising costs incurred on account. $142,000. g. Depreciation was recorded for the year. $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $115.000 (80% related to factory facilities, and the remainder related to selling and administrative facilities). i. Manufacturing overhead cost was applied to jobs, $_? j. Cost of goods manufactured for the year, $830,000. k. Sales for the year (all on account) totaled $1,500,000. These goods cost $860,000 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 $36,000 $ 27.000 $ 66,000 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, 48. Prepare a schedule of cost of goods sold. 5. Prepare an income statement for the year.

Answer 1

Part 1: Sr No Account title Raw Materials Accounts Payable Credit 92,000 23,000 Sr No Account title |h. Debit Credit Debit Manufacturing Overhead =115000*0.8 Rent Expense Accounts Payable 230,000 a. 230,000 115,000 Work in Process Raw Materials 215,000 b. Work in Process =330*1135 215,000 374,550 Manufacturing Overhead 374,550 Manufacturing Overhead (65000*0.85) Utilities Expense Accounts Payable 55,250 9,750 c. Finished Goods j. 830,000 65,000 Work in Process 830,000 Work in Process Manufacturing Overhead Salaries Expense Salaries and Wages Payable 260,000 96,000 140,000 Accounts Receivable 1,500,000 d. k. Sales 1,500,000 Cost of Goods Sold Finished Goods 496,000 860,000| 860,000 Manufacturing Overhead Accounts Payable 60,000 e. 60,000 142,000 Advertising Expense Accounts Payable Predetermined overhead rate =estimated overhead/estimated direct labor hours 349800/1060 330 Per DLH f. 142,000 Manufacturing Overhead =90000*0.75 Depreciation Expense Accumulated Depreciation 67,500 22,500 g. 90,000 Sheet526 Sheet528 Sheet529 Sheet530 1H Sheet523 Sheet525 Sheet531 Sheet524 Sheet527 ENG 09:13 27/01/2020 US

Part 2: Accounts Payable (a) c) (e) (f) (h) Accounts Receivable Sales 230,000 65,000 60,000 142,000 115,000 (k) (k) | 1,500,000| | 1,500,000| Cost of Goods Sold Raw Materials 860,000 36,000 (b) 230,000 51,000 (k) 215,000 Bal. (a) Bal. Salaries & Wages Payable (d) Manufacturing Overhead 55,250 (i) 96,000 60,000 67,500 92,000 Bal. 496,000 Work in Process 830,000 374,550 27,000 (G) 215,000 260,000 374,550 46,550 Bal. (c) (d) (e) (g) (h) (b) (d) Depreciation Expense 22,500 (g) Bal. 3,800 Rent Expense 23,000 |(h) Finished Goods 66,000 (k) 830,000 36,000 Advertising Expense 142,000| |(f) Bal. 860,000 Bal. Accumulated Depreciation (g) Utilities Expense 9,750 (c) 90,000 Salaries Expense 140,000 (d) Sheet523 Sheet524 Sheet526 Sheet527 Sheet528 Sheet529 Sheet525 Sheet530 Sheet531 ENG 09:14 US 27/01/2020

FroyaFabrikker A/S 3.Schedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning Purchases of raw materials Materials available for use Raw materials inventory, ending Materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Work in process, beginning 36,000 230,000 266,000 51,000 | 215,000 260,000 374,550 849,550 27,000 876,550 46,550 830,000 Deduct: Work in process, ending Cost of goods manufactured Part 4A: Account title Manufacturing Overhead Cost of Goods Sold Debit Credit 3,800 3,800

4B.Schedule of cost of goods sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct finished goods inventory, ending Unadjusted cost of goods sold Deduct: Overapplied overhead Adjusted cost of goods sold 66,000 830,000 896,000 36,000 860,000 3,800 856, 200 FroyaFabrikker A/S 5.Income Statement 1,500,000 856,200 643,800 Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Utilities expense Salaries expense Depreciation expense Rent expense Net operating income 142,000 9,750 140,000 22,500 23,000 337,250 306,550