Question

Perez Corporation makes rocking chairs. The chairs move through two departments during production. Lumber is cut into chair parts in the cutting department, which transfers the parts to the assembly department for completion. The company sells the unfinished chairs to hobby shops. The following transactions apply to Perez's operations for its first year, Year 1. (Assume that all transactions are for cash unless otherwise stated.) 1. The company was started when it acquired a $110,000 cash contribution from the owners. 2. The company purchased $33,000 of direct raw materials and $1,100 of indirect materials. Indirect materials are capitalized in the Production Supplies account. 3. Direct materials totaling $11,000 were issued to the cutting department. 4. Labor cost was $53,000. Direct labor for the cutting and assembly departments was $18,000 and $26,000 respectively. Indirect labor costs were $9.000 5. The predetermined overhead rate was $0.50 per direct labor dollar in each department 6. Actual overhead costs other than indirect materials and indirect labor were $13,100 for the year 7. The cutting department transferred $25,000 of Inventory to the assembly department 8. The assembly department transferred $41,000 of inventory to finished goods. 9. The company sold Inventory costing $36.000 for $64,000. 10. Selling and administrative expenses were $5,000. 1 A physical count revealed $200 of production supplies on hand at the end of Year 1 12. Assume that over or underapplied overhead is insignificant Required: a. Record the data in T-accounts b. Record the closing entry for over- or underapplied manufacturing overhead, assuming that the amount is insignificant c. Close the revenue and expense accounts d. Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for Year 1.

Answer 1

Cash 110000 64000 Common Stock 110000 Raw Material 33000 11000 2 1 9 2 34100 53000 13100 5000 End. Bal 110000 End. Bal 22000 10 33 End. Bal 68800 Retained Earnings 22000 22000 CI Revenue 64000 64000 Manufacturing Overhead 4 9000 22000 6 13100 1000 11 900 12 End. Bal End. Bal End. Bal 0 Work In Process -Cutting 3 11000 25000 4 18000 9000 Cost of Goods Sold 9 36000 37000 CI 12 1000 Work in Process - Assembly 4 26000 41000 5 13000 7 25000 5 End. Bal 0 0 47 End. Bal. 13000 End. Bal. 23000

Finished Goods 41000 36000 Production Supplies 1100 900 9 11 49 Selling and Adminstrative Expenses 50 10 5000 5000 cl. 51 52 End. Bal. 53 54 End. Bal. 5000 End. Bal. 200