Question

Problem 3-16 Comprehensive Problem (LO3-1, LO3-2, LO3-4) Gold Nest Company of Guandong, China, is a family-owned enterprise that makes birdcages for the South China market. The company sells its birdcages through an extensive network of street vendors who receive commissions on their sales. The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $95,000 of manufacturing overhead for an estimated activity level of $50,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials Work in process Finished goods $ 10,900 $ 4,000 $ 8,400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 166,000. b. Raw materials used in production, $145,000 (materials costing $127,000 were charged directly to jobs, the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ 173,000 $ 252,700 $ 20,000 $ 45,000 d. Rent for the year was $18,400 ($13,200 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory. $14,000. f. Advertising costs incurred, $14,000. g. Depreciation recorded on equipment, $23,000. ($16,000 of this amount related to equipment used in factory operations, the remaining $7,000 related to equipment used in selling and administrative activities.) h. Record the manufacturing overhead cost applied to jobs. 1. Goods that had cost $227,000 to manufacture according to their job cost sheets were completed. j. Sales for the year (all paid in cash) totaled $512,000. The total cost to manufacture these goods according to their job cost sheets was $216,000 Required: 1. Prepare journal entries to record the transactions for the year. 2. Prepare T-accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don't forget to enter the beginning balances in your inventory accounts). 3A. Is Manufacturing Overhead underapplied or overapplied for the year? 3B. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.

Answer 1

Credit Credit Requirement (1) Transaction General Journal a) Raw Materials Accounts Payable Debit $ 166,000 Requirement (2) Raw Materials Beg. Bal. 10,900 $ 145,000 b) a) $ 166,000 Requirement (3) Event General Journal 1 Manufacturing Overhead Cost of goods sold Debit $14,800 $ 166,000 $ 14,800 b) End. Bal. $ 31,900 Work in Process Manufacturing Overhead Raw Materials (To Close Balance in MOH to Cost of goods sold) $ $ 127,000 18,000 $ 145,000 c) Work in Process Manufacturing Overhead Sales Commissions Expense Salaries Expense Salaries and Wages Payable $ 173,000 $ 252,700 $ 20,000 $ 45,000 Work in Process Beg. Bal. $ 4,000 $227,000 b) $ 127,000 c) $ 173,000 h) $ 328,700 End. Bal. $ 405,700 $ 490,700 Requirement (4) Gold Nest Company Income Statement Sales $ 512,000 Less Cost of Goods Sold $ 201,200 Gross Profit $ 310,800 Less Selling and Administrative Expenses Sales Commissions $20,000 Administrative Salaries $ 45,000 Rent Expense $ 5,200 Advertising Expense $14,000 Depreciation Expense $ 7,000 $ 91,200 Net Operating Income $ 219,600 d) Manufacturing Overhead Rent Expense Accounts Payable $ $ 13,200 5,200 $ 18,400 Manufacturing Overhead Accounts Payable $ 14,000 Finished Goods Beg. Bal. $ 8,400 $216,000 5) D $ 227,000 $ 14,000 f) $ 14,000 End. Bal. $ 19,400 Note: Please comment down for any further clarifications Advertising Expense Accounts Payable $ 14,000 9) Manufacturing Overhead Depreciation Expense Accumulated Depreciation $ $ 16,000 7,000 $ 23,000 h) $ 328,700 Work in Process Manufacturing Overhead b) c) d) e) 9) Manufacturng Overhead $ 18,000 $328,700 h) $ 252,700 $ 13,200 $ 14,000 $ 16,000 $ 14,800 End. Bal. $ 328,700 1) Finished Goods Work in Process $ 227,000 $ 227,000 i) Cash Sales $ 512,000 $ 512,000 Cost of Goods Sold $ 216,000 1) $ 216,000 Cost of Goods Sold Finished Goods $ 216,000 End. Bal. $ 216,000