Question

a.) Purchased $180,000 of direct materials on account. b.) Purchased $5,000 of supplies on account. (The supplies consisted of glue and cleaning supplies.) c.) Requisitioned $170,000 of direct materials and $4,500 of supplies for use in production. d.) Incurred employee costs: i. Direct labour   $150,000 ii. Indirect labour      40,000 iii. Administrative salaries 190,000 iv. Sales salaries       30,000 v. Sales commissions     90,000 e.) Advertised on local television: $5,000 f.) Rent: $12,000. 40% of the space related to sales offices, 60% was a shop used in production of roofing materials. g.) Depreciation: $25,000. 70% relates to roofing equipment, 30% relates to office equipment. h.) Insurance expired: $15,000. 90% relates to the factory, the remainder relates to insurance on the office equipment. i.) Manufacturing overhead costs were applied to production. j.) Goods costing $375,000 were completed. k.) The company had sales on account of $800,000. According to cost data, the jobs cost $350,000. a.) For items a.)-k.) above, record journal entries. Unless otherwise noted, assume all transactions were on account. b.) Was overhead overapplied or underapplied for the period? By how much? c.) Record a journal entry to close overhead to cost of goods sold. d.) Based on the information above, prepare an income statement for the company – assume a 20% tax rate.

Answer 1

Req a) Journal Entries:
Date	Accounts Title	Debit $	Credit $
a	Material	180000
	AP		180000
	(being material purchased on credit)
b	Supplies	5000
	AP		5000
	(purchased supplies on account)
c	WIP	174500
	Material		170000
	Supplies		4500
	(Being mat and supplies issued to production)
d	WIP	150000
	Manuf Overhead	40000
	Admin & Selling exp	310000		(190000+30000+90000)
	Wages payable		500000
	(being labor applied to production, overhead & admin)
e	Admin & Selling exp	5000
	AP		5000
f	Manuf Overhead	7200
	Admin & Selling exp	4800
	Rent payable		12000
	(being prod & admin rent booked)
g	Manuf Overhead	17500
	Admin & Selling exp	7500
	Depreciation		25000
	(being depreciation booked)
h	Manuf Overhead	13500
	Admin & Selling exp	1500
	Insurance		15000
	(being insurance booked)
i	WIP	78200
	Manuf Overhead		78200	(40000+7200+17500+13500)
	(Being whole overhead is applied to production as no defined rate)
j	FG Inventory	375000
	WIP		375000
	(Being finished goods transferred out)
k	AR	800000
	Sales revenue		800000
	(being credit sales booked)
	COGS	350000
	FG Inventory		350000
	(Being cost of sales transferred from FG Inventory)
Req b) There is no over/under - application of overhead as whole is applied
to WIP / production, being there no defined rate of application.
Req c) No entry, being no over/under - applied overhead.
Req d) Income Statement:
Sales	800000
Less: COGS	350000
GP	450000			2
Less: Selling & Admin exp:	328800	(310000+5000+4800+7500+1500)
IBT	121200
Less: tax@20%	24240
Net Income	96960