Question

Munoz Manufacturing Company was started on January 1, 2018. The company was affected by the following events during its first year of operation:

Acquired $1,700 cash from the issue of common stock.

Paid $540 cash for direct raw materials.

Transferred $420 of direct raw materials to work in process.

Paid production employees $650 cash.

Paid $370 cash for manufacturing overhead costs.

Applied $220 of manufacturing overhead costs to work in process.

Completed work on products that cost $1,070.

Sold products that cost $820 for $1,630 cash.

Paid $400 cash for selling and administrative expenses.

Made a $70 cash distribution to the owners.

Closed the Manufacturing Overhead account.

Required

Record these events in a horizontal statements model. The first event is shown as an example.

Prepare a schedule of cost of goods manufactured and sold.

Record these events in a horizontal statements model. The first event is shown as an example. (Enter decreases to account balances with a minus sign.)

Assets = Equity Event No. Cash + Manufacturing Overhead + Raw Materials + Work in Process + Finished Goods = Common Stock + Retained Earnings Revenue – Expense = Net Income 1. $1,700 + + + + = $1,700 + – = 2. (540) + + 540 + + = + – = 3. + + (420) + 420 + = + – = 4. (650) + + + 650 + = + – = 5. (370) + 370 + + + = + – = 6. + (220) + + + = + – = 7. + + + (1,070) + 1,070 = + – = 8a. 1,630 + + + + = + 1,630 1,630 – = 1,630 8b. + + + + (820) = + (820) – 820 = (820) 9. (400) + + + + = + (400) – 400 = (400) 10. (70) + + + + = + (70) – = 11. + (150) + + + = + (150) – 150 = (150) Total $1,300 + $0 + $120 + $0 + $250 = $1,700 + $190 $1,630 – $1,370 = $260

Prepare a schedule of cost of goods manufactured and sold.

	MUNOZ MANUFACTURING COMPANY Schedule of Cost of Goods Manufactured and Sold For the Year Ended December 31, 2018 Raw materials available 0 Raw materials used 0 Total manufacturing costs 0 Total work in process inventory 0 Cost of goods manufactured 0 Cost of goods available for sale 0 Cost of goods sold $0

Answer 1

Note: In the horizontal statements model, for event no. 6, only one effect has been given. The second effect should be $220 under work in process. The total for work in process should be $220 instead of $0 as is currently seen. The accounting equation will balance only then. Currently it is not balanced.

Assets = Equity

$1300 + $0 + $120 + $220 + $250 = $1700 + $190

$1890 = $1890

Please rectify the same prior to submission.

Munoz Manufacturing Company
Schedule of Cost of Goods Manufactured and Sold
For the Year Ended December 31, 2018
Beginning raw materials inventory $	0
Raw material purchases	540
Raw materials available	540
Ending raw materials inventory	-120
Raw materials used	420
Direct labor	650
Manufacturing overhead	220
Total manufacturing costs	1290
Beginning work in process inventory	0
Total work in process inventory	1290
Ending work in process inventory	-220
Cost of goods manufactured	1070
Beginning finished goods inventory	0
Cost of goods available for sale	1070
Ending finished goods inventory	-250
Cost of goods sold $	820

Note: The cost of goods sold shown in the schedule is the unadjusted cost of goods sold $820 prior to closing the manufacturing overhead account since the format provided does not have rows for showing the underapplied overhead and adjusted cost of goods sold. The adjusted cost of goods sold will be:

Cost of goods sold $	820
Underapplied manufacturing overhead	150
Cost of goods sold (adjusted) $	970