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 $399,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $280,000.
2. Raw materials used in production (all direct materials), $265,000.
3. Utility bills incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,100 hours)	$	310,000
Indirect labor	$	106,000
Selling and administrative salaries	$	190,000

5. Maintenance costs incurred on account in the factory, $70,000
6. Advertising costs incurred on account, $152,000.
7. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
8. Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).
1. Manufacturing overhead cost was applied to jobs, $ ? .
10. Cost of goods manufactured for the year, $930,000.
11. Sales for the year (all on account) totaled $2,000,000. These goods cost $960,000 according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were:

Raw Materials	$	46,000
Work in Process	$	37,000
Finished Goods	$	76,000

Required:

1. Prepare journal entries to record the preceding transactions.

Transaction list for for journal entries:

· 1

The raw materials were purchased for use in production, $280,000 on account.

· 2

The raw materials used in production (all direct materials), $265,000.

· 3

The utility bills were incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities).

· 4

The salary and wage costs accrued were $310,000 (Direct labor), $106,000 (Indirect labor), $190,000 (Selling and administrative salaries).

· 5

The maintenance costs were incurred on account in the factory, $70,000.

· 6

The advertising costs were incurred on account, $152,000.

· 7

The depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).

· 8

The entry for rental cost incurred on account on buildings, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).

· 9

The entry for manufacturing overhead cost applied to jobs.

· 10

The cost of goods manufactured for the year, $930,000.

· 11

The sales for the year (all on account) totaled $2,000,000.

· 12

The goods cost $960,000 according to their job cost

GENERAL JOURNAL HEADINGS (CATEGORY) CHOICES

· No journal entry required

· Accounts payable

· Accounts receivable

· Accumulated depreciation

· Advertising expense

· Commissions

· Cost of goods sold

· Depreciation expense

· Direct materials

· Finished goods

· Indirect materials

· Manufacturing overhead

· Purchases

· Raw materials

· Rent expense

· Salaries and wages payable

· Salaries expense

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.

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

journal entries

​​​​​​1)

S.no	particulars	Debit ($)	credit ($)
1	Raw material inventory	280000
	Accounts payable		280000
2	work in process	265000
	Raw material inventory		265000
3	manufacturing overhead	60000
	Utility expenses	15000
	Utilities payable		75000
4	work in process	310000
	Manufacturing overhead	106000
	Selling and administrative salaries	190000
	Wages payable		606000
5	manufacturing overhead	70000
	Accounts payable		70000
6	advertising expenses	152000
	Accounts payable		152000
7	manufacturing overhead	74800
	Depreciation expenses	13200
	Accumulated depreciation		88000
8	manufacturing overhead	101700
	Rental expenses	11300
	Rental payable		113000
9	work in process(below note )	418000
	Manufacturing overhead		418000
10	finished goods	930000
	Work in process		930000
11	account receivable	2000000
	Sales revenue		2000000
12	cost of goods sold	960000
	Finished goods		960000

NOTE : PREDETERMINED OVERHEAD=399000/1050=380 PER DIRECT LABOUR HOUR

   APPLIED OVERHEAD= 380×1100=418000

2) RAW MATERIAL INVENTORY

Beginning balance	46000	work in process	265000
Accounts payable	280000
		Balance	61000

   Work in process

Beginning balance	37000	FINISHED GOODS	930000
Raw material inventory	265000
Wages payable	310000
Manufacturing overhead	41800
		Balance	100000

FINISHED GOODS

Beginning balance	76000	cost of goods sold	960000
Work in process	930000
		Balance	46000

Manufacturing overhead

Utilities payable	60000	work in process	418000
Wages payable	106000
Accounts payable	70000
Accumulated depreciation	74800
Rental payable	101700
Balance (overapplied)	5500

3.SCHEDULE OF COST OF GOODS MANUFACTURED

Direct material	265000
Direct labour	310000
Manufacturing overhead	418000
Total manufacturing costs	993000
Add. Beginning work in process	37000
Less. Ending work in process	(100000)
cost of goods manufactured	930000

4A.

Particulars	debit	credit
Manufacturing overhead	5500
Cost of goods sold		5500

4b SCHEDULE OF COST OF GOODS SOLD

Beginning finished goods	76000
Cost of goods manufactured	930000
Cost of goods available for sale	1006000
Less ending finished goods	(46000)
Unadjusted costs of goods sold	960000
Less over applied overhead	(5500)
Adjusted cost of goods sold	954500

5.INCOME STATEMENT

Revenue	2000000
Less cost of goods sold	(954500)
Gross margin	1045500
Less expenses
Utilities expenses	(15000)
Salaries expenses	(190000)
Advertising expenses	(152000)
Depreciation expenses	(13200)
Rental expenses	(11300)
operating income	664000

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