Question

Cash……………………………………………… $23,000 Accounts Receivable…………………………….. 67,000 Finished Goods………………………………….. 101,000 Work in Process…………………………………. 30,000 Materials ………………………………………… 17,000 Prepaid factory Insurance.....……………………… 7,000 Machinery and Equipment (cost)……………… 264,000 Accumulated Depreciation……………………… $70,000 Accounts Payable……………………………….. 97,000 Common Stock……………………………………. 200,000 Retained Earnings……………………………… 142,000 Total ………………………………………… $509,000 $509,000 During May, the following transactions took place: May 1. Purchased raw materials for $45,000 and factory supplies for $3,000 on account. (Record materials and supplies in the materials control account) 2. Received a $50,000 loan from First National Bank to be repaid in 5 years. 3. Declared a $1,500 cash dividend. 3. Issued raw materials to production, $52,000 5. Paid factory utility bill, $10,230 in cash. 15. Received a bill for May’s janitorial services, $4,500. This amount has not yet been paid. 16. Used factory supplies costing $1,000. (Indirect manufacturing cost). 20. Incurred research & development expense on account, $6,000. 22. Paid other factory overhead costs, $12,500. 23. Incurred selling and administrative expenses on account, $13,250. 28. Paid cash dividend, $1,500. 25. Incurred payroll costs of $45,000 (not yet paid). Of this amount, $30,000 were direct labor costs and $15,000 indirect labor cost. 27. Incurred restructuring costs totaling $15,000 on account. 28. Prepaid factory insurance expired, $1,750. 28. Paid payroll costs, $45,000. 30. Record depreciation for May. Depreciation rate is 10% per annum on the cost of machinery and equipment. One-fifth of this depreciation is for office equipment and the remainder is for factory machinery and equipment. 30. Allocate manufacturing overhead costs to production on the basis of direct labor costs. 31. Completed and transferred goods with a total cost of $95,000 to the finished goods storeroom. 31. Sold goods costing $200,000 for $374,000. (Assume all sales were made on account). 31. Paid accounts payable totaling, $158,000 31. Collected accounts receivable in the amount of $320,000. 31. Accrue $400 interest expense. 31. Calculate the overallocated or underallocated overhead and close this amount to the Cost of Goods Sold account.

Answer 1

Part -1 Factory Overhead Allocation rate 558000/372000

(Budgeted Ovh/Direct Labor Cost) 150%

Part -2 Journal Entries for Trial

Date Account Debit Credit

1-May Material $ 48,000

1-May Accounts Payable $48,000

2-May Cash $ 50,000

2-May Long Term Loan $50,000

3-May Dividends $ 1,500

3-May Dividend Payable $ 1,500

3-May Work in Process $ 52,000

3-May Material $52,000

5-May Factory Overhead $ 10,230

5-May Cash $10,230

15-May Factory Overhead $ 4,500

15-May Accounts Payable $ 4,500

16-May Factory Overhead $ 1,000

16-May Material $ 1,000

20-May Research Expense $ 6,000

20-May Accounts Payable $ 6,000

22-May Factory Overhead $ 12,500

22-May Cash $12,500

23-May Selling and Admin Expense $ 13,250

23-May Accounts Payable $13,250

28-May Dividend Payable $ 1,500

28-May Cash $ 1,500

25-May Work in process $ 30,000

25-May Factory Overhead $ 15,000

25-May Wages Payable $45,000

27-May Restructcturing Expense $ 15,000

27-May Accounts Payable $15,000

28-May Factory Overhead $ 1,750

28-May Prepaid Insurance $ 1,750

28-May Wages Payable $ 45,000

28-May Cash $45,000

30-May Factory Overhead $ 1,760

30-May Depreciation Expsenses - Office $ 440 5-Jan

30-May Accumulated depreciation $ 2,200 264000*10%*1/12

31-May Work In Process $ 45,000 30000*150%

31-May Factory Overhead $45,000

31-May Finished Goods Inventory $ 95,000

31-May Work In Process $95,000

31-May Accounts Receivable $ 374,000

31-May Sale $374,000

31-May Cost of Goods Sold $ 200,000

31-May Finished Goods Inventory $200,000

31-May Accounts Payable $ 158,000

31-May Cash $158,000

31-May Cash $ 320,000

31-May Accounts Receivable $320,000

31-May Interest Expense $ 400

31-May Interest Payable $ 400

31-May Cost of Goods sold $ 1,740

31-May Factory Overhead $ 1,740

Working for over/under applied:

Applied Overheads (30000*150%) $45,000

Less: Actual Overheads

Utility Bill $ 10,230

Janitorila service $ 4,500

Factory Supplies $ 1,000

Factory Overhead cost $ 12,500

Indirect Wages $ 15,000

Insurance $ 1,750

Depreciation $ 1,760 $46,740

Under Applied Overheads $ 1,740

April May Final

Account Debit Credit Debit Credit Debit Credit

Cash $23,000 $ 142,770 $165,770

Accounts Receivable $67,000 $ 54,000 $121,000

Finished Goods $101,000 $105,000 $ -4,000

Work in Process $30,000 $ 32,000 $62,000

Materials $17,000 $ 5,000 $12,000

Prepaid Factory Insurance $ 7,000 $ 1,750 $ 5,250

Machinery and Equipment (cost) $264,000 $264,000

Accumulated Depreciation $70,000 $ 2,200 $72,200

Accounts payable $97,000 $ 71,250 $25,750

Interest Payable $ 400 $ 400

Income Tax Payable $28,806 $28,806

Long Term Loan $50,000 $50,000

Dividends $ 1,500 $ 1,500

Common Stock $200,000 $200,000

Retained Earning $142,000 $142,000

Sale $374,000 $374,000

Cost of Goods Sold $ 201,740 $201,740

Selling and Admin Expense $ 13,250 $13,250

Depreciation Expsenses - Office $ 440 $ 440

Research Expense $ 6,000 $ 6,000

Restructcturing Expense $ 15,000 $15,000

Interest Expense $ 400 $ 400

Income Tax $ 28,806 $28,806

Total $509,000 $509,000 $ 567,156 $567,156 $893,156 $893,156

Multi Setp Income Statement:

Sale $ 374,000

Cost of Goods Sold $ 201,740

Gross Margin $ 172,260

Less: Operating Expenses

Selling and Admin Expense $13,250

Depreciation Expsenses - Office $ 440

Research Expense $ 6,000

Restructcturing Expense $15,000

Total Operating Expenses $ 34,690

Net Operating Income $ 137,570

Less: Interest Expense $ 400

Income Before Tax $ 137,170

Less: Income Tax 21% $ 28,806

Net Income $ 108,364

Classified Balance Sheet:

Assets

Current Assets:

Cash $ 165,770

Accounts Receivable $ 121,000

Finished Goods $ -4,000

Work in Process $ 62,000

Materials $ 12,000

Prepaid Factory Insurance $ 5,250

Total Current Assets $ 362,020

Machinery and Equipment (cost) $264,000

Accumulated Depreciation ($72,200)

Machinery and Equipment (Net) $ 191,800

Total Assets $ 553,820

Liabilities

Current Liabilities:

Accounts payable $ 25,750

Interest Payable $ 400

Income Tax Payable $ 28,806

Total Current Liabilities $ 54,956

Long Term Loan $ 50,000

Total Liabilities $ 104,956

Common Stock $200,000

Retained Earning $248,864

Total Stockholder's Equity $ 448,864

Total Liabilities and Equity $ 553,820

Statement of Retained Earning:

Beginning Retained Earning $142,000

Add:Net Income $108,364

Less: Dividend $ -1,500

Ending Retained Earning $248,864