Question

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 $105,000 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 $10,200 $ 4,500 $ 8,200 During the year, the following transactions were completed: a. Raw materials purchased on account, $161,000. b. Raw materials used in production, $149,000 (materials costing $123,000 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 $ 167,000 $ 263,200 $ 25,000 $ 43,000

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

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part 1 Part 2 Event Account Debit Credit Debit Raw Material inventory Debit Beginning Balance $ 10,200 b a $ 161,000 a $ 161,000 $ 149,000 Raw material inventory Accounts Payable $ 161,000 b Work in process inventory Factory Overhead Raw material Inventory $ 123,000 $ 26,000 Ending Balance $ 22,200 $ 149,000 с Debit $ 226,000 Work in process inventory Factory Overhead Sales Commission Administrative Salaries Wages Payable $ 167,000 $ 263,200 $ 25,000 $ 43,000 Work in Process Inventory Debit Beginning Balance $ 4,500 i b $ 123,000 с $ 167,000 h $ 350,700 Ending Balance $ 419,200 $ 498,200 d Factory Overhead Rent Expense-Selling Accounts Payable $ $ 13,700 4,700 $ 18,400 Debit Finished Goods Inventory Debit Beginning Balance $ 8,200 i i $ 226,000 $ 218,000 e $ 19,000 Factory Overhead Cash $ 19,000 f f. $ 11,000 Advertising Expense Cash Ending Balance $ 16,200 $ 11,000 Debit Factory Overhead Depreciation Expense-Selling Accumulated Depreciation $ $ 15,000 7,000 Cost of Goods sold Debit $ 218,000 Overapplied j $ 13,800 $ 22,000 h $ 350,700 Work in process inventory Factory Overhead $105,000/$50,000*$167,000 $ 350,700 Ending Balance $ 204,200 i $ 226,000 Debit Finished Goods Inventory Work in process inventory $ 226,000 b $ 350,700 с Manufacturing Overhead Debit $ 26,000 h $ 263,200 $ 13,700 $ 19,000 $ 15,000 $ 13,800 $ 499,000 d Cash Sales $ 499,000 e g $ 218,000 Overapplied Cost of goods sold Finished Goods Inventory $ 218,000

Part 3A Actual Overehads Applied Overheads Overapplied $ $ $ 336,900 350,700 13,800 Entry: Part 3B $ 13,800 Factory Overheads Cost of Goods sold $ 13,800 Part 4 Entryj T account $ 499,000 $ -204,200 $ 294,800 25,000 Sales Less: Cost of Goods sold Gross Margin Less: Operating Expense: Sales Commission Administrative Salaries Rent Expense-Selling Advertising Expense Depreciation Expense-Selling Total Opearting Expense Net Income 43,000 Entry c Entryc Entry d Entryf $ $ $ $ $ 4,700 11,000 7,000 Entry 8 $ -90,700 204,100 $