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 $399,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $280,000.
2. Raw materials used in production (all direct materials), $265,000.
3. Utility bills incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,100 hours)	$	310,000
Indirect labor	$	106,000
Selling and administrative salaries	$	190,000

1. Maintenance costs incurred on account in the factory, $70,000
2. Advertising costs incurred on account, $152,000.
3. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
4. Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).
5. Manufacturing overhead cost was applied to jobs, $ ? .
6. Cost of goods manufactured for the year, $930,000.
7. Sales for the year (all on account) totaled $2,000,000. These goods cost $960,000 according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were:

Raw Materials	$	46,000
Work in Process	$	37,000
Finished Goods	$	76,000

Required:

1. Prepare journal entries to record the preceding transactions.

-The raw materials were purchased for use in production, $280,000 on account.

-The raw materials used in production (all direct materials), $265,000.

-The utility bills were incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities).

-The salary and wage costs accrued were $310,000 (Direct labor), $106,000 (Indirect labor), $190,000 (Selling and administrative salaries).

-The maintenance costs were incurred on account in the factory, $70,000.

-The advertising costs were incurred on account, $152,000.

-The depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).

-The entry for rental cost incurred on account on buildings, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).

-The entry for manufacturing overhead cost applied to jobs.

-The cost of goods manufactured for the year, $930,000.

-The sales for the year (all on account) totaled $2,000,000.

-The goods cost $960,000 according to their job cost sheets.

• Note: Enter debits before credits.

• 	Transaction General Journal Debit Credit a.

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.

	Transaction General Journal Debit Credit 1

4B. Prepare a schedule of cost of goods sold.

Prepare an income statement for the year.

5. Prepare an income statement for the year.

Answer 1

Please hit LIKE button if this helped. Part 1 a. $ 280,000 Raw Materials Accounts Payable $ 280,000 b. $ 265,000 Work in Process Raw Materials $ 265,000 C. Manufacturing Overhead Utilities Expense Accounts Payable $ $ 60,000 15,000 is 75,000 d. $ Work in Process Manufacturing Overhead Salaries Expense Salaries and Wages Payable $ $ 310,000 106,000 190,000 $ 606,000 e. $ 70,000 Manufacturing Overhead Accounts Payable $ 70,000 f. $ 152,000 Advertising Expense Accounts Payable $ 152,000 Manufacturing Overhead Depreciation Expense Accumulated Depreciation $ $ 74,800 13,200 $ 88,000 h. Manufacturing Overhead Rent Expense Accounts Payable $ $ 102,510 11,390 $ 113,900 i. $ 418,000 Work in Process ($399,000/1,050 Hours*1,100) Manufacturing Overhead $ 418,000 j. $ 930,000 Finished Goods Work in Process $ 930,000 k. $ 2,000,000 $ 2,000,000 Accounts Receivable Sales Cost of Goods Sold Finished Goods $ 960,000 $ 960,000

Part 2 Sales Accounts Receivable 2,000,000 (k) $ (k) $ 2,000,000 Raw Materials Cost of Goods Sold $ 960,000 $ 265,000 (k) Bal. (a) Bal. $ $ $ 46,000 (b) 280,000 61,000 Work in Process $ 930,000 $ 418,000 $ $ Bal. (b) (d) (i) Bal. $ S 37,000 (1) 265,000 310,000 418,000 100,000 (c) (d) (e) (g) (h) Manufacturing Overhead $ 60,000 (i) $ 106,000 $ 70,000 $ 74,800 $ 102,510 Bal. $ $ 4,690 Finished Goods Advertising Expense $ 152,000 $ 960,000 (f) Bal. (i) Bal. $ $ $ 76,000 (k) 930,000 46,000 Accumulated Depreciation Utilities Expense $ 15,000 $ 88,000 (c) Accounts Payable Salaries Expense $ 190,000 (d) (a) (C) (e) () (h) $ $ $ $ $ $ 280,000 75,000 70,000 152,000 113,900 690,900 Depreciation Expense $ 13,200 (g) Salaries & Wages Payable Rent Expense $ 11,390 (d) $ 606,000 (h)

Part 3 Direct materials: Raw materials inventory, beginning Purchases of raw materials Materials available for use Raw materials inventory, ending Materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Work in process, beginning $ 46,000 $ 280,000 $ 326,000 $ -61,000 $ 265,000 $ 310,000 $ 418,000 $ 993,000 $ 37,000 $ 1,030,000 $ -100,000 $ 930,000 Deduct: Work in process, ending Cost of goods manufactured Part 4a $ 4,690 Manufacturing Overhead Cost of Goods Sold $ 4,690 Part 4b Schedule of cost of goods sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct finished goods inventory, ending Unadjusted cost of goods sold Deduct: Overapplied overhead Adjusted cost of goods sold $ 76,000 $ 930,000 $ 1,006,000 $ -46,000 $ 960,000 $ -4,690 $ 955,310 Part 5 Income Statement $ 2,000,000 $ -955,310 $ 1,044,690 Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Utilities expense Salaries expense Depreciation expense Rent expense Net operating income $ $ $ $ $ 152,000 15,000 190,000 13,200 11,390 $ $ -381,590 663,100