Question

Vernon Construction Company began operations on January 1, 2019, when it acquired $14,000 cash from the issuance of common stock. During the year, Vernon purchased $2,500 of direct raw materials and used $2,400 of the direct materials. There were 106 hours of direct labor worked at an average rate of $6 per hour paid in cash. The predetermined overhead rate was $3.00 per direct labor hour. The company started construction on three prefabricated buildings. The job cost sheets reflected the following allocations of costs to each building:

	Direct Materials			Direct Labor Hours
Job 1	$	400		26
Job 2		1,000		52
Job 3		1,000		28

The company paid $68 cash for indirect labor costs. Actual overhead cost paid in cash other than indirect labor was $236. Vernon completed Jobs 1 and 2 and sold Job 1 for $1,254 cash. The company incurred $140 of selling and administrative expenses that were paid in cash. Over- or underapplied overhead is closed to Cost of Goods Sold.

Required

Record the preceding events in a horizontal statements model. The first event for 2019 has been recorded as an example.

Reconcile all subsidiary accounts with their respective control accounts.

Record the closing entry for over- or underapplied manufacturing overhead in the horizontal statements model, assuming that the amount is insignificant.

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2019.

Answer 1

1…...Events	Assets=					Liabilities+	Equity
	Cash	Dir. Mat.	WIP	Fin. Gds.			Common stock	Revenue-	Expenses
Issue of common stock	14000						14000
Purchase of dir. Materials	-2500	2500
Issue of materials to prodn.		-2400	2400
Labor charges incurred	-636		636
Mfg. OH applied			318						-318
Mfg.OH incurred	-304								304
Trf. To Fin.gds.inv.			-2102	2102
S&A exp.	-140								140
Sale of Job 1	1254							1254
COGS				-634					634
Mfg. OH over applied(-14+14)									0
Total	11674	100	1252	1468		0	14000	1254	760
				14494		14494

Journal Entries
Cash	14000
Common stock		14000
Direct materials inventory	2500
Cash		2500
WIP	2400
Direct materials inventory		2400
WIP	636
Cash		636
WIP	318
Mfg.OH		318
(applied)
Mfg. OH	304
Cash		304
(actually Incurred)
Finished goods Inventory	2102
WIP		2102
(634+1468)
Sell.& Admn. Exp.	140
Cash		140
Cash	1254
Sales Revenue		1254
COGS	634
Finished goods Inventory		634
Mfg. OH	14
COGS		14
(Over-applied Mfg. OH)

	Direct Materials	Direct Labor Hours*cost	MOH applied	Total
Job 1	400	156	78	634
Job 2	1,000	312	156	1468
Job 3	1,000	168	84	1252
Total	2400	636	318	3354

Schedule of:
Cost of goods manufactured & COGS
Raw materials used	2400
Direct labor(106*6)	636
Applied Mfg. OH(106*3)	318
Total Manufacturing costs		3354
Less: Ending WIP-Job-3		1252
Cost of goods manufactured(Jobs 1&2)		2102
Less: Ending Finished goods Inventory-Job-2		1468
Cost of Goods sold		634
Less: Over applied Mfg.OH		14
Adjusted COGS		620

Income Statement
Sales Revenue	1254
Less: COGS(634-14)	620
Gross Margin	634
Less: Selling expenses	140
Net Income	494

Balance sheet
Cash	11674
Finished goods Inventory	1468
Raw materials inventory(2500-2400)	100
WIP Inventory-Job 3	1252
Total assets	14494
Liabilities & Equity
Equity	14000
Net Income	494
Total Liabilities & Equity	14494