Question

Problem 3-16 Comprehensive Problem [LO3-1, LO3-2, LO3-4] 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 $60,000 of manufacturing overhead for an estimated activity level of $40,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows Raw materials Work in process Finished goods $ 10,000 $ 4,700 $ 8,700 During the year, the following transactions were completed a. Raw materials purchased for cash, $ 168,000 b. Raw materials used in production, $146,000 (materials costing $120,000 were charged directly to jobs, the remaining materials were indirect) C. Cash paid to employees as follows Direct labor Indirect labor Sales commissions Administrative salaries $ 154,000 $ 142,500 $ 30,000 $ 47,000 d. Cash paid for rent during the year was $18,700 ($13,200 of this amount related to factory operations, and the remainder related to selling and administrative activities) e. Cash paid for utility costs in the factory, $18,000 f. Cash paid for advertising, $13,000 g. Depreciation recorded on equipment, $24,000. ($17,000 of this amount related to equipment used in factory operations, the remaining $7,000 related to equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, $_? i. Goods that had cost $225,000 to manufacture according to their job cost sheets were completed j. Sales for the year (all paid in cash) totaled $515,000. The total cost to manufacture these goods according to their job cost sheets was $218,000 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 Complete this question by entering your answers in the tabs below.

Answer 1

	predetermined overhead rate =			60000/40000
				1.5
No.	Accounting titles & Explanations					debit	Credit
a)	Raw materials inventory					168,000
	cash						168,000
b)	work in process inventory					120,000
	Factory overhead					26,000
	Raw materials inventory						146,000
c)	Work in process inventory					154,000
	Factory overhead					142,500
	Sales commission expense					30,000
	Salaries expense					47,000
	cash						373,500
d)	Factory overhead					13,200
	Rent expense					5,500
	cash						18,700
e)	Factory overhead					18,000
	cash						18,000
f)	Advertising expense					13,000
	cash						13,000
g)	Factory overhead					17,000
	Depreciation expense					7,000
	Accumulated depreciation						24,000
h)	work in process inventory					231000
	Factory overhead		(154000*150%)				231000
i)	finished goods inventory					225,000
	work in process inventory						225,000
j)	Cash					515,000
	Sales revenue						515,000
	cost of goods sold					218,000
	finished goods inventory						218,000
	T-Accounts
	Raw materials				Work in process
Bal	10,000				Bal	4,700
a)	168,000	146,000	b)		b)	120,000	225,000	i)
					c)	154,000
Bal	32,000				h)	231000
					Bal	284,700
					Manufacturing overhead
	Finished goods				beg.bal	0
Bal	8,700				b)	26,000	231000	h)
i)	225,000	218,000			c)	142,500
					d)	13,200
Bal	15,700				e)	18,000
					g)	17,000
							14,300	Bal
	cost of goods sold
Beg.bal	0
j)	218,000
3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					14,300
	Cost of goods sold						14,300
4)		Income Statement
	Sales						515,000
	less : cost of goods sold			(218000-14300)			203,700
	Gross margin						311,300
	less:Selling & administrative expense
	Sales comission					30,000
	Administrative salaries					47,000
	Rent exepense					5,500
	Advertising expense					13,000
	Depreciation expense					7,000	102,500
	Net operating income						208,800