Question

Exhibit 3A-1 contains a Microsoft Excel spreadsheet that includes the beginning balances shown in the balance sheet above. Notice that column "J" of the spreadsheet contains "=" signs (see cells 35 and J6). This means that after we record each of the forthcoming transactions, the amounts on the left-hand side of column "J" will always need to equal the amounts on the right-hand side of column "J." EXHIBIT 3A-1 Sapphire Company: Transaction Analysis A B С D E G H 1 J к L 1 Sapphire Company 2 Transaction Analysis 3 For the Month Ended January 31 Row Work in Finished Manufacturing Prepaid Accounts Retained 5 Transactions Cash Materials Process Goods Overhead Expenses PP&E (net) - Payable Earnings Beginning balances @ 1/1 $ 15,000 $ 8,000 $ 5,000 $ 13,000 $ $ 3,000 $240,000 - $ 4,000 $280,000 7 HH Exhibit 24-1_Ehite 34-2 Bab 32 Puhbat 344 Bet3 Bebt 3-5 Also, notice that the spreadsheet contains all of the accounts shown in the January 1 balance sheet plus an account called Manufacturing Overhead. As discussed earlier in the chapter, Manufacturing Overhead is a clearing account that always has a beginning and ending balance of zero. This account is used to record two things—all actual overhead costs and the amount of manufacturing overhead applied to production using the predetermined overhead rate. The difference between the actual overhead cost and the amount of overhead applied to production is the underapplied or overapplied overhead. Finally, to conserve space, the Excel spreadsheet abbreviates Property, Plant, and Equipment (net) as PP&E (net). The term net implies that the acquisition cost of property, plant, and equipment is being reported net of accumulated depreciation. Sapphire Company-Transaction Analysis The remainder of the appendix proceeds in three steps. First, it lists Sapphire Company's transactions for the month of January. Second, it explains how each of these transactions is recorded in the Microsoft Excel spreadsheet. Finally, it explains how to use the information depicted in the spreadsheet to prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold, and an income statement for the month of January Page 137 To begin our illustration, let's assume that Sapphire Company has a predetermined overhead rate of $25 per direct labor-hour that was based on a cost formula that estimated $100,000 in manufacturing overhead cost for an estimated allocation base of 4,000 direct labor-hours. During January, the company completed the following transactions:

Answer 1

Transactions e SAPPHIRE COMPANY Transaction Analysis For the Month Ended january 31 Manufacturing Prepaid Selling & Cash Rawmaterials WIP Finished goods Overhead expense Admin PPE net Total 15000 80001 50001 130001 3000 240000 284000 = 0 800001 364000 -78000 70000 8000 364000 - 135000 68000 45000 22000 364000 = 15000 379000] = 28000 12000 -40000 379000 = - 18000 18000 379000 = 800 -1000 200 379000 = 102500 -102500 379000 -235000 235000 379000 320000 6990001 -245000 454000 -92000 362000 5700 367700 -52200 90000 10000 10500 3000 0 2000 0 200000 315500 = Beginning Balance a Purchase Rawmaterials on account b Rawmaterials used с Wages and salaries d Utility costs e Depreciation f advt. 8 Insurance expired h Overhead applied i Cost of goods manufactured j Cash sales k Cost of good sold 1 Payment to creditors m Overapplied Overhead n Selling and admini charged to Total + Account Retained Total payable + earnings 40000 + 280000 284000 80000 + 364000 + 364000 + 364000 15000 + 379000 379000 + 379000 + 379000 379000 379000 320000 699000 -245000 454000 -92000 362000 5700 367700 -52200 7000 + 308500 315500

5000 70000 Cost of goods manufactured Op. WIP D. Materials D. Labor Overhead applied Less Cl. WIP Cost of goods manufactured 68000 1025001 -10500 235000 Cost of goods sold Op. Finished goods Cost of goods manufactured 13000 235000 Less Cl. Finished goods -3000 Cost of goods Sold 245000

Income statement Sales Less cost of goods sold 245000 - 5700 320000 -239300 807001 Gross profit Selling and admin Net Income -522001 28500