Question

Cash	$      35,000
Accounts Receivable	65,000
Finished Goods	120,000
Work in Process	58,683
Materials	14,000
Building	580,000
Accum. Deprec.—Building		$      43,500
Factory Equipment	440,000
Accum. Deprec.—Factory Equipment		110,000
Office Equipment	90,000
Accum. Deprec.—Office Equipment		33,750
Accounts Payable		85,000
Notes Payable		100,000
Capital Stock		470,000
Retained Earnings		560,433
Total	$1,402,683	$1,402,683

During the month of August, the following transactions took place:

a.	Purchased raw materials at a cost of $55,000 and general factory supplies at a cost of $18,000 on account. (NOTE: Materials account includes both materials and supplies.)
b.	Issued raw material to be used in production, costing $45,500, and miscellaneous factory supplies, $13,500.
c.	Recorded the payroll, the payment to the employees, and the distribution of the wages and salaries for the month. The distribution is as follows: selling salaries, $5,000, administrative salaries, $7,000, and factory wages (including $10,000 indirect labor), $48,000.
d.	Incurred other expenses on account totaling $9,000. Thirty percent of this amount is allocable to the office and selling functions.
e.	Recorded depreciation for the month at an annual rate of 5% on the building, 20% on the factory equipment, and 25% on the office equipment. The sales and administrative staff use approximately one-fourth of the building for its offices.
f.	Transferred total factory overhead to Work in Process.
g.	Paid $10,000 on the note that was due this month.
h.	Completed and transferred goods totaling $95,000 to the finished goods storeroom.
i.	Sold goods costing $173,000, on account. The company uses a 75% mark-on percentage.
j.	Received $284,000 from customers on account.
k.	Paid creditors $163,000.

how do i journalize these and Preparing a statement of cost of goods manufactured, and income statement, and a balance sheet?

Answer 1

Answer-1-

a. Both raw materials and general factory supplies will be recorded in materials account as mentioned. The counter entry is made in account receivable account.

Materials	73,,000
Accounts Payable		73,000

b. While issuing raw materials and supplies into production, the amount is transferred to work-in-process account. Raw materials directly move to work-in-process, while factory supplies first flow to factory overhead account and then to work-in-process as,

Work-in-Process	45,500
Factory Overhead (Indirect material)	13,500
Materials			59,000

c. Allocation is made to the payroll account through wages payable account. Payroll of factory employees working in direct production flows to work-in-process account. Next, payroll of factory employees not working directly on production is part of indirect labor and first flows through factory overhead account and then into work-in-process. Payroll of office employees moves to a separate selling and administration expense account.

Payroll		60,000
Wages Payable		60,000
Work-in-Process	38 ,000
Factory Overhead (Indirect Labor)	10,000
Selling and Administrative Expenses (Salaries)	12,000
Payroll			60,000

E. Depreciation is allocated to factory overheads and selling and administration expense depending upon if it is factory related or office related. Depreciation of building is divided on basis of proportion of area allocated to office and factory activities. In this case, one-fifth of monthly depreciation of building will be allocated to sales and administrative account and the rest to factory overheads.

5% depreciation of building is calculated as,

5% of $580,000 = $29,000 annually. Therefore, the monthly depreciation is $2417. One-forth of $2417 i.e. $604 is allocated to Selling and administrative account since it is used for office activities. The rest $1,813 is allocated to factory under head Factory Overhead account.

Factory equipment is depreciated at the rate of 20% per year. 20% of $440,000 is $88,000. The monthly expense is $7333 approximately. This is completely allocated to factory overhead account.

Office equipment is depreciated at the rate 25% per year. 25% of $90,000 is $22,500 per year. The monthly expense is $1,875. This is completely allocated to Selling and Administrative account.

All this is journalized as,

Factory Overhead (Depreciation of Building)	1,813
Factory Overhead (Depreciation of Factory Equipment)	7,333
Selling and Administrative Expenses (Depreciation of Building)	604
Selling and Administrative Expenses (Depreciation of Office Equipment)	1,875
Accumulated Depreciation-Building		11,625
Accumulated Depreciation-Factory Equipment	7,333
Accumulated Depreciation-Office Equipment	1,875

d. Other expenses will be divided between selling and administration expense account and factory overhead account. Since 30% of this is allocated to office function, 30% of $9,000, i.e. $2,700 is allocated to selling and administration expense account. The rest, $6,300 is allocated to factory overhead account. The entry is as,

Factory Overhead (Miscellaneous)	6,300
Selling and Administrative Expenses (Miscellaneous)	2,700
Accounts Payable		9,000

f. Factory overhead account shows the following expense items:

Factory Overhead (Indirect material)	13,500
Factory Overhead (Indirect Labor)	10,000
Factory Overhead (Depreciation of Building)	1,813
Factory Overhead (Depreciation of Factory Equipment)	7,333
Factory Overhead (Miscellaneous)	6,300
Total	38,946

To transfer this amount to work-in-process account, the following entry is passed,

Work-in-Process	38,946
Factory-Overhead		38,946

H. Goods valuing $91,00 have been completed. Thus, goods are transferred from work-in-process to finished goods account.

Finished Goods	95,000
Work-in-Process		95,000

h. This transaction has two aspects. First, goods valuing $173,000 are first transferred from finished goods account to cost of goods sold account. The entry is passed as,

Cost of Goods Sold	173,000
Finished Goods		173,000

Next, these goods are sold for $362,000 on account. Thus, the following entry is passed,

Accounts Receivable	302,750
Sales revenue			302,750

i. Cash received on account of sales is journalized as,

Cash		284,000
Accounts Receivable		284,000

Cash paid on account of amount payable is journalized as,

Accounts Payable	163,000
Cash			163,000