Question

Cathcart Corporation had the following inventory balances on January 1, 2020: Raw Materials Inventory $10,000 Work in Process Inventory $20,000 Finished Goods Inventory $28,000 During 2020, the following transactions occurred: 1. Purchased $60,000 of raw materials on account. 2. $40,000 of raw materials were issued to the factory of which $35,000 are considered to be direct materials. 3. Total factory labor charges included 10,000 direct labor hours paid at $8 per hour and $20,000 of indirect labor charges. 4. Other factory overhead costs incurred included $8,000 of factory depreciation, $1,000 of expired factory insurance, $3,000 of accrued factory property taxes, and $4,000 of miscellaneous factory costs paid in cash. 5. Units with a total cost of $154,000 were completed. 6. Units with a total cost of $140,000 were sold for $200,000 cash. Cathcart Company uses an actual costing system. REQUIRED: A. Complete a cost-flow T-account diagram. B. Prepare all of the necessary journal entries. C. Prepare a manufacturing statement and a partial (through gross profit) income statement

Answer 1

A.		Raw Materials Inventory			Work in Process Inventory
	Ref.	Debit	Ref.	Credit		Ref.	Debit	Ref.	Credit
	Bal.	10000	2	40000		Bal.	20000	5	154000
	1	60000				2	35000
		70000		40000		3	80000
	Bal.	30000				From FOH	41000
							176000		154000
						Bal.	22000
		Finished Goods Inventory			Factory overhead
	Ref.	Debit	Ref.	Credit		Ref.	Debit	Ref.	Credit
	Bal.	28000	6	140000		2	5000	Tr, to WIP	41000
	5	154000				3	20000
		182000		140000		4	16000
	Bal.	42000					41000		41000
		Cost of goods sold
	Ref.	Debit	Ref.	Credit
	6	140000
B.	Journal entries:
	Ref.	Account titles				Debit	Credit
	1	Raw Materials Inventory				60000
		Accounts payable					60000
		(Purchased raw materials on account)
	2	Work in Process Inventory				35000
		Factory overhead		(40000-35000)		5000
		Raw Materials Inventory					40000
		(Materials issued)
	3	Work in Process Inventory			(10000*8)	80000
		Factory overhead				20000
		Wages payable					100000
		(Factory labor incurred)
	4	Factory overhead				16000
		Accumulated depreciation					8000
		Prepaid insurance					1000
		Property taxes payable					3000
		Cash					4000
		(Factory overhead incurred)
	5	Finished Goods Inventory				154000
		Work in Process Inventory					154000
		(Units completed)
	6	Cash				200000
		Sales					200000
		(Units sold)
		Cost of goods sold				140000
		Finished Goods Inventory					140000
		(Cost of goods sold recorded)