Question

Problem 5-17 Comprehensive Problem (LO2, LO3, LO4, LOS, LO7] Gold Nest Company of Hong Kong is a family-owned enterprise that makes souvenirs for the tourist commissions on their sales. Transactions occur in Hong Kong dollars ($). The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labour cost. It budgeted $330,000 of manufacturing overhead and estimated direct labour cost to be $200,000 in total this fiscal year. On July 1, the start of the company's fiscal year, inventory account balances were as follows: Raw materials Work in process Finished goods $25,000 $10,000 $40,000 During the year, the following transactions were completed: a. Raw materials were purchased on account: $275,000. b. Raw materials were requisitioned for use in production: $280,000 (materials costing $220,000 were chargeable directly to jobs; the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labour Indirect labour Sales commissions Administrative salaries $ 72,000 $ 63,000 $ 90,000 d. Rent during the year: $75,000 ($60,000 of this amount related to factory operations, and the remainder related to administrative activities). e. Utility costs were incurred in the factory: $57,000. f. Advertising costs were incurred: $14,000. g. Depreciation was recorded on equipment: $100,000 ($88,000 of this amount was on equipment used in factory operations; the remaining $12,000 was on equipment used in selling and administrative activities). h. Manufacturing overhead cost was applied to jobs: $__? i. Goods that had cost $675,000 to manufacture according to their job cost sheets were completed. j. Sales (all on account) to customers during the year totalled $1,250,000. These goods cost $700,000 to manufacture according to their job cost sheets. Required: 1. Prepare journal entries to record the transactions for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your
Problem 5-17 Comprehensive Problem [LO2, LO3, LO4, LO5, LO7]

Answer 1

Predetermined manufacturing overhead rate = Budgeted manufacturing overhead/Total estimated direct labor cost = $330000/$200000 = 165% of direct labor cost

1.

Transaction	General Journal	Debit	Credit
a.	Raw Materials	275000
	Accounts payable		275000
	(To record raw materials purchased on account)
b.	Work in process	220000
	Manufacturing overheads	60000
	Raw Materials		280000
	(To record raw materials requisitioned)
c.	Work in process	180000
	Manufacturing overheads	72000
	Sales commission expense	63000
	Administrative salaries expense	90000
	Cash		405000
	(To record cost of employee services incurred)
d.	Manufacturing overheads	60000
	Rent expense	15000
	Cash		75000
	(To record rent incurred)
e.	Manufacturing overheads	57000
	Cash		57000
	(To record utilities costs incurred)
f.	Advertising expense	14000
	Cash		14000
	(To record advertising costs incurred)
g.	Manufacturing overheads	88000
	Depreciation expense	12000
	Accumulated depreciation-equipment		100000
	(To record depreciation on equipment)
h.	Work in process	297000
	Manufacturing overheads (165% x $180000)		297000
	(To record manufacturing overhead applied to jobs)
i.	Finished goods	675000
	Work in process		675000
	(To record cost of jobs completed)
j(1)	Accounts receivable	1250000
	Sales Revenue		1250000
	(To record sales on account)
j(2)	Cost of goods sold	700000
	Finished goods		700000
	(To record cost of goods sold)

2.

Raw Materials
Beg. Bal.	25000	280000	b.
a.	275000
End. Bal.	20000
Work in Process
Beg. Bal.	10000	675000	i.
b.	220000
c.	180000
h.	297000
End. Bal.	32000
Finished Goods
Beg. Bal.	40000	700000	j(2)
i.	675000
End. Bal.	15000
Manufacturing Overhead
b.	60000	297000	h.
c.	72000
d.	60000
e.	57000
g.	88000
End. Bal.	40000
Cost of Goods Sold
j(2)	700000
End. Bal.	700000

3-a. Underapplied

Manufacturing overhead incurred $337000 - Manufacturing overhead applied $297000 = Overheads underapplied $40000

3-b.

Event	General Journal	Debit	Credit
1	Cost of goods sold	40000
	Manufacturing overhead		40000
	(To close manufacturing overhead to cost of goods sold)

4.

Gold Nest Company
Income Statement
For the Year Ended June 30
Sales		1250000
Cost of goods sold ($700000 + $40000)		740000
Gross profit		510000
Selling and administrative expenses:
Sales commission expense	63000
Advertising expense	14000
Administrative salaries expense	90000
Rent expense	15000
Depreciation expense	12000	194000
Net income		316000