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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $290,000. b. Raw materials used in production (all direct materials), $275,000. c. Utility bills incurred on account, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (970 hours) Indirect labor Selling and administrative salaries $ 320,000 $ 108,000 $ 200,000 e. Maintenance costs incurred on account in the factory, $72,000 f. Advertising costs incurred on account, $154,000. 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, $950,000. k. Sales for the year (all on account) totaled $2,100,000. These goods cost $980,000 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 $ 48,000 $ 39,000 $ 78,000 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

Answer with explanation:

1.

Transaction General Journal Debit $ 290,000 Credit $ a. Raw Materials Inventory Accounts Payable 290,000 b. 275,000 Work in Process Inventory Raw Materials Inventory 275,000 C. Manufacturing Overhead Utilities Expense Accounts Payable 69,300 7,700 77,000 d. Work in Process Inventory Manufacturing Overhead Salaries Expense Salaries and Wages Payable 320,000 108,000 200,000 628,000 e. 72,000 Manufacturing Overhead Accounts Payable 72,000 f. 154,000 Advertising Expense Accounts Payable 154,000 g. Manufacturing Overhead Depreciation Expense Accumulated Depreciation : Equipment 67,500 22,500 90,000 h. Manufacturing Overhead Rent Expense Accounts Payable 92,000 23,000 115,000 1. 417,100 Work in Process Inventory Manufacturing Overhead 417,100 j. 950,000 Finished Goods Inventory Work in Process Inventory 950,000 k. Accounts Receivable Sales 2,100,000 2,100,000 980,000 Cost of Goods Sold Finished Goods Inventory 980,000

2.

Raw Materials Inventory $48,000 b) 290,000 Beg. bal. a) 275,000 Beg. bal. b) d) i) Work-in-process Inventory $39,0001). 950,000 275,000 320,000 417,100 End. bal. $63,000 End. bal. $101,100 Finished Goods Inventory Beg. bal. $78,000 k) 1) 950,000 980,000 C) 417,100 d) e) g) h) Manufacturing Overhead 69,3000) 108,000 72,000 67,500 92,000 End. bal. $48,000 End. bal. $8,300 Cost of Goods Sold 980,000 k) Accounts payable a) C e f) h) $290,000 77,000 72,000 154000 115,000 End. bal. $708,000 End. bal. $980,000 Utilities expense 7,700 Salaries expense 200,000 End. bal. $7,700 End. bal. $200,000 Salaries and wages payable d) 628,000 Advertising expense 154,000 f) End. bal. $628,000 End. bal. $154,000 Depreciation expense 22,500 Accumulated depreciation g) g) 90,000 End. bal. $22,500 End. bal. $90,000 Rent expense 23,000 Accounts receivable 2,100,000 h) k) End. bal. $23,000 End. bal. $2,100,000 Sales revenue k) 2,100,000 End. bal. $2,100,000

3.

Froya Fabrikker A/S Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory $48,000 Add: Purchases of raw materials 290,000 Raw materials available for use $338,000 Less: Ending raw materials inventory 63,000 Raw materials used in production Direct labor Manufacturing overhead applied Total manufacturing cost Add: Opening Work in process inventory 275,000 320,000 417,100 1,012,100 39,000 1,051,100 -101, 100 950,000 Less: Ending work in process inventory Cost of goods manufactured 4-B) Froya Fabrikker AIS Schedule of Cost of Goods Sold Beginning finished goods inventory $78,000 Add: Cost of goods manufactured 950,000 Cost of goods available for sale $1,028,000 Less: Ending finished goods inventory -48,000 Unadjusted cost of goods sold $980,000 Less: Overapplied overhead -8,300 Adjusted cost of goods sold $971,700 5) $2,100,000 -980,000 $1,120,000 Froya Fabrikker A/S Income Statement Sales Less: Cost of goods sold Gross profit Selling and administrative expenses: Utilities expense Salaries expense Advertising expense Depreciation expense Rent expense Total selling and administrative expenses Net operating income 7,700 200,000 154,000 22,500 23,000 -407,200 $712,800

4.A)

Credit Debit $8,300 Transaction General Journal 1 Manufacturing overhead Cost of goods sold (To record overapplied overhead) $8,300

Predetermined overhead rate = ($395,600/ 920 hours) × 970 direct labor hours = $417,100

Actual overhead = 69,300+108,000+72,000+67,500+92,000 = $408,800

Overapplied or underapplied overhead = $417,100 - $408,800 = $8,300 overapplied.
( When the actual overhead is more than applied, it is called overapplied)