Question

please solve for e.(Why is cost of goods sold adjusted upward on the income statement?)

43. Journal Entries, Closing Manufacturing Overhead, and Preparing an Income Statement. Jansen, Inc., is a defense contractor that uses job costing. Because the firm uses a perpetual inventory system, the three supporting schedules to the income statement the schedule of raw materials placed in production, the schedule of cost of goods manufactured, and the schedule of cost of goods sold) are not necessary. Inventory account beginning balances at January 1, 2016, are listed as follows. Raw materials inventory $ 500,000 Work-in-process inventory $ 700,000 Finished goods inventory $1,800,000 You will be recording the following transactions, which summarize the activities that occurred during the year ended December 31, 2016: 1. Raw materials were purchased for $300,000 on account 2. Raw materials totaling $420,000 were placed in production, $60,000 for indirect materials and $360,000 for direct materials. 3. The raw materials purchased in transaction 1 were paid for. 4. A total cost of $800,000 for direct labor, shown on the timesheets, was recorded as wages payable. 5. Production supervisors and other indirect labor working in the factory were owed $540,000, recorded as wages payable. 6. Wages owed, totaling $1,200,000, were paid. (These wages were previously recorded correctly as wages payable.) 7. The costs listed in the following related to the factory were incurred during the period. (Hint: Record these items in one entry with one debit to manufacturing overhead and four separate credits): Building depreciation $580,000 Insurance (prepaid during 2016, now expired) $220,000 Utilities (on account) $ 80,000 S440,000 id cash)

Answer 1

A debit balance of $120,000 in manufacture overhead indicates the underapplied overhead of $120,000.
Underapplied overhead would be closed to the cost of goods sold if the variance is non-significant. Thus, $120,000 will be added to the unadjusted cost of goods sold in order to get the adjusted cost of goods sold.
Unadjusted cost of goods sold (as per T account)	$    2,570,000
Add: Under applied of overhead	$        120,000
Adjusted Cost of goods Sold (Amount reported in the income statement)	$    2,690,000