Question

12 B Step #3: Now, enter the transactions and adjustments for January. While the computer will post the transactions to the accounts in the general ledger, you should use the job cost cards as necessary. When you ve entered all of the transactions, print your income statement and balance sheet. 1/3 Received $10,000 from customers paying on account 1/5 Purchased raw materials on account from Smith Co. for $115,000. 1/12 Requisitioned raw materials from the warehouse for Job #107 - Total $25,000 1/16 Made a partial payment of $50,000 on the materials purchased on January 5 and issued a 60-day, 6%note payable for the balance. 1/18 Requisitioned raw materials from the warehouse for Job #108 - Total $50,000. 1/31 Direct labor for the month was used as follows: Job #107 - $36,000 Job #108 - $70,000 The direct labor employees were paid in cash (no withholdings). 1/31 Paid $55,000 for Indirect labor. (No withholdings.) 1/31 Paid administrative salaries for the month of $3,500 and sales salaries of $1,500. (No withholdings.) 1/31 Received and paid the utility bill of $1,750. The company determined that $1,400 related to the factory and $350 to selling and administrative activities. 1/31 Estimated property taxes for the month at $800. Allocate $650 to the factory and $150 to selling and administrative activities. 1/31 Prepare the adjusting entry to accrue interest on the 1/16 note to Smith Company

Answer 1

	Accounts Receivable
Particulars	Amount	Particulars	Amount
Beg Balance	18000	Cash	10000
		Balance	8000
	18000		18000
	Accounts payable
Particulars	Amount	Particulars	Amount
Cash	50000	Beg balance	0
Note payable	65000	Raw materials	115000
	115000		115000
	Raw material
Particulars	Amount	Particulars	Amount
Beg Balance	10000	WIP job 107	25000
accounts payable	115000	WIP Job 108	50000
		Balance	50000
	125000		125000
	WIP Job 107
Particulars	Amount	Particulars	Amount
Beg Balance	15000	Finished goods	94000
Materials	25000
Direct labor	36000
Factory overhead	18000
	94000		94000
	Notes payable
Particulars	Amount	Particulars	Amount
Balance	65000	Beg balance	0
		Accounts payable	65000
	65000		65000
	Direct labor
Particulars	Amount	Particulars	Amount
Cash	106000	WIP job 107	36000
		WIP job 108	70000
	106000		106000
	Indirect labor
Particulars	Amount	Particulars	Amount
Cash	55000	Factory overhead	55000
	55000		55000
	Salaries
Particulars	Amount	Particulars	Amount
Cash	3500	Selling and administrative	5000
Cash	1500
	5000		5000
	Factory overhead
Particulars	Amount	Particulars	Amount
Utility bill	1400	Allocated to WIP Job 107	18000
Property tax	650	Allocated to WIP Job 108	35000
Depreciation on factory building	12000	Cost of goods sold	22050
Depreciation on factory machinery	6000
Indirect labor	55000
	75050		75050
	Selling and administrative
Particulars	Amount	Particulars	Amount
Utility bill	350	income statement	12700
Property tax	150
Salaries	5000
Depreciation on office building	4800
Depreciation on office equipment	2400
	12700		12700
	Utility bill
Particulars	Amount	Particulars	Amount
Cash	1750	Factory overhead	1400
		Selling and administrative	350
	1750		1750
	Property tax
Particulars	Amount	Particulars	Amount
Accrued expenses	800	Factory overhead	650
		Selling and administrative	150
	800		800
	Accrued expenses
Particulars	Amount	Particulars	Amount
Balance	800	Beg balance
		Property tax	800
	800		800
	Interest
Particulars	Amount	Particulars	Amount
Accrued interest	975	Income statement	975
	975		975
	Accrued interest
Particulars	Amount	Particulars	Amount
balance	975	Beg balance
		interest	975
	975		975
	Depreciation on factory building
Particulars	Amount	Particulars	Amount
Acc depre-fac building	12000	Factory overheads	12000
	12000		12000
	Acc depre Factory building
Particulars	Amount	Particulars	Amount
Balance	72000	Beg balance	60000
		Depreciation on factory building	12000
	72000		72000
	Depreciation on factory machinery
Particulars	Amount	Particulars	Amount
Acc depre-fac machinery	6000	Factory overheads	6000
	6000		6000
	Acc depre Factory machinery
Particulars	Amount	Particulars	Amount
Balance	36000	Beg balance	30000
		Depreciation on factory machinery	6000
	36000		36000
	Depreciation on office building
Particulars	Amount	Particulars	Amount
Acc depre-office building	4800	Selling and administrative	4800
	4800		4800
	Acc depre office building
Particulars	Amount	Particulars	Amount
Balance	28800	Beg balance	24000
		Depreciation on office building	4800
	28800		28800
	Depreciation on office equipment
Particulars	Amount	Particulars	Amount
Acc depre-office equipment	2400	Selling and administrative	2400
	2400		2400
	Acc depre office equipment
Particulars	Amount	Particulars	Amount
Balance	14400	Beg balance	12000
		Depreciation on office equipment	2400
	14400		14400

	Cash
Particulars	Amount	Particulars	Amount
Beg balance	290000	accounts payable	50000
Accounts receivable	10000	Direct labor	106000
Sales	195000	indirect labor	55000
		Salaries	3500
		Salaries	1500
		Utility bill	1750
		Balance	277250
	495000		495000
	Finished goods
Particulars	Amount	Particulars	Amount
Beg Balance	22000	Cost of goods sold	116000
WIP Job 107	94000
	116000		116000
	WIP Job 108
Particulars	Amount	Particulars	Amount
Beg Balance	0	WIP inventory	155000
Materials	50000
Direct labor	70000
Factory overhead	35000
	155000		155000
		Cost of goods sold
Particulars	Amount	Particulars	Amount
Finished goods	116000	income statement	138050
Factory overhead	22050
	138050		138050
		Sales
Particulars	Amount	Particulars	Amount
Cash	195000	income statement	195000
	195000		195000
Journal entries
Cash	10000
To accounts receivable		10000
Raw materials	115000
To accounts payable		115000
WIP Job 107	25000
To raw materials		25000
Accounts payables	115000
To cash		50000
To note payable		65000
WIP Job 108	50000
To raw materials		50000
Direct labor	106000
To Cash		106000
WIP Job 107	36000
WIP job 108	70000
To Direct labor		106000
Indirect labor	55000
To cash		55000
Factory overhead	55000
To indirect labor		55000
Salaries	5000
To Cash		5000
Selling and administrative expenses	5000
To Salaries		5000
Utility Bill	1750
To cash		1750
Factory overhead	1400
Selling and administrative expenses	350
TO utility bill		1750
Property tax	800
To Accrued expenses		800
Factory overhead	650
Selling and administrative expenses	150
To Property tax		800
Interest	975
To accrued interest		975
Depreciation expense factory building	12000
Depreciation expense factory machinery	6000
Depreciation expense office building	4800
Depreciation expense office equipment	2400
To Accum depre-fac building		12000
To Accum depre-fac machinery		6000
To Accum depre-office building		4800
ToAccum depre-office equipment		2400
WIP Job 107	18000
WIP Job 108	35000
To factory overheads		53000
Finished goods inventory	94000
To WIP Jon 107		94000
Cost of goods sold	116000
To Finished goods inventory		116000
Sales	195000
To cash		195000
Cost of goods sold	22050
To factory overheads		22050

Income statement
Sales	195000
Cost of goods sold	138050
Gross margin	56950
Operating expenses
Selling and administrative	12700
Operating profit	44250
interest expense	975
Net profit	43275

Balance sheet
Assets
Cash	277250
Accounts receivable	8000
Raw material inventory	50000
WIP inventory	155000
Finished goods inventory	0
Land	100000
Factory Building	480000
Factory Machinery	120000
Office building	96000
Office equipment	24000
Total Assets	1310250
Liabilities
Accounts payable	0
Notes payable	65000
Accrued expense	800
Accrued interest	975
Accum depre-fac building	72000
Accum depre-fac machinery	36000
Accum depre-office building	28800
Accum depre-office equipment	14400
Total liabilties	217975
Common stock	700000
APIC	100000
Retained earnings	292275
Total equity	1092275
Total equity and liabilities	1310250

Answers:

1. Total raw materials used in January :

For JOb 107 25000; for job 108 50000

=75000

2. The overheads allocated include various costs such as rent, utilities, depreciation, indirect labor, etc. It is a bunch of costs. A predetermined overhead rate is an equation to allocate costs based on labor hours, machine hours, etc. this rate helps to set a baseline cost figure to allocate resources to each job and set pricing. It also helps to monitor the costs. It gives more consistant analysis even during periods of seasonal variability

3.

The better allocation method to allocate underapplied overheads will be % allocation method to spread out costs to total goods produced during the month instead of just dumping the total to COGS

Meanings in Jan

Job 107-Cost of goods sold- 79000-34%

Jon 108-WIP- 155000-66%

Total production-234000

Allocation of COGS

Total	22050
To COGS	34%	=22050*34%	7497
To WIP	66%	=22050*66%	14553

4.

		Cost of goods sold
Particulars	Amount	Particulars	Amount
Finished goods	116000	income statement	138050
Factory overhead	22050
	138050		138050
		Sales
Particulars	Amount	Particulars	Amount
Cash	195000	income statement	195000
	195000		195000